Anne Maher Chief Executive The Pensions Board Ireland 16 - 17 May 2006 EUROPEAN INSTITUTE Sovereign...

Anne MaherChief Executive

The Pensions BoardIreland

16 - 17 May 2006

EUROPEAN INSTITUTEEUROPEAN INSTITUTE

Sovereign Funds RoundtableSovereign Funds Roundtable

IT ALL BEGINS (AND ENDS) WITH IT ALL BEGINS (AND ENDS) WITH GOOD CORPORATE GOOD CORPORATE

GOVERNANCEGOVERNANCE

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AGENDAAGENDA

Background

Key Components

Good models – what they do

Conclusion

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BACKGROUNDBACKGROUND Greatly increased focus arising from corporate and

accounting scandals, for example Enron New legislation and regulation affecting accounting and

corporate disclosure and governance, for example, Sarbanes-Oxley Act 2002 in US and Combined Code on Corporate Governance together with new accountancy regulation in UK

OECD guidelines for Pension Fund Governance, EU Pensions Directive, national pension regulators and supervisors all have disclosure and accountability requirements for private pension funds

General climate change also affects public funds

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KEY COMPONENTSKEY COMPONENTS Focus of liability on a governing body or person

accountable to someone

Good governance of governing body/person

Effective accounts and audit requirements

Effective custody requirements

Public transparency and reporting to all stakeholders

Independent oversight

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KEY COMPONENTS – Focus of LiabilityKEY COMPONENTS – Focus of Liability Usually clear for private funds but not easy for public funds

because of:

• Large number of stakeholders• No supervisory authority in most cases

Important to have governing body or person with the responsibility

Liability should be established in law and be personal

Liability should be clear and relationship with other parties should be clear including:

• The Government• The Public

Governing body/person must be accountable to someone – ideally to Parliament

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KEY COMPONENTS – Good KEY COMPONENTS – Good Governance of Governing BodyGovernance of Governing Body

This requires:

Independence – in particular from political pressure

Sound appointment and removal procedures

Conflict identification and management

Clear responsibilities and requirements

Clear mandates and objectives

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KEY COMPONENTS – Effective KEY COMPONENTS – Effective Accounts and AuditAccounts and Audit

Accounts Should be required at regular intervals Should be done to highest national (or international) accounting

standards Should have prescribed contents

Audits Can be provided internally Must also be provided by external auditors who are independent Must be regular Must adhere to national (or international) auditing standards Should include actuarial evaluation

International Standard for Accounting and Auditing ofPublic Funds Does not exist but would be helpful

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KEY COMPONENTS – Effective KEY COMPONENTS – Effective CustodyCustody

Custody

Must be provided externally

Must be independent reputable institution providing custody services

May include sub-custodians but must cover all relevant areas

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KEY COMPONENTS –KEY COMPONENTS –Public Transparency & ReportingPublic Transparency & Reporting

Requires Reports to be published at regular intervals

Contents of reports to be prescribed

Reporting mechanism to the entity to which governing body is accountable, preferably Parliament

Public promulgation of reports

Mechanism for public to seek and obtain relevant information

Specific information to potential beneficiaries including statements of benefits

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KEY COMPONENTS – KEY COMPONENTS – Independent oversightIndependent oversight

Includes External audit

External actuarial valuations of assets and liabilities

External verification of investment returns

Desirable A power for Government to commission

independent examinations

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GOOD MODEL – Canada Pension PlanGOOD MODEL – Canada Pension Plan

Good governance → positive outcomes by defining responsibilities and accountabilities

Some Key features: Independence from political interference achieved by

two separate juridical persons in the Canada Pension Plan (CPP) and the CPP Investment Board (CPPIB)

Clear role of CPPIB set out in Canada Pension Plan Investment Board Act

Appointment of CPPIB Directors process designed to ensure independent appointments – minimises risk of political interference

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GOOD MODEL – Canada Pension PlanGOOD MODEL – Canada Pension Plan Codes of conduct are public documents and two key

aspects are:• Controls on personal investing• Disclosure of real or potential conflicts of interest

Independent auditing firm required Procurement policy must be adhered to External custodian required Detailed signing authorities and limits Minister may appoint an auditor to conduct special audit

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CPPIB Annual Report distributed to:

Federal and provincial financial ministers

Members of federal parliament and provincial legislatures

Stakeholder groups

Public libraries

Posted on web-site

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CPPIB Annual Report Content Audited financial statements Statement of corporate governance Duties, objectives and mandate Board committees Decisions requiring board approval Board performance review Expectations of management Objectives for past year and how met Objectives for coming year Total compensation of top-five officers

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Further Transparency and Reporting Rates of return Market value of assets Conference calls Quarterly financial reports Public meetings Conducts broad dialogue and reporting campaign with

Canadians coast to coast Very good website

Aim is Disclose Disclose Disclose

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GOOD MODEL – Norwegian Government GOOD MODEL – Norwegian Government Pension Fund – GlobalPension Fund – Global

Norwegian Storting adopted Act relating to Government Pension Fund in 2005

Continuation of Petroleum Fund Clear accountability role

• Ministry of Finance is ‘owner’• Major changes debated in Parliament• Central Bank (Norges Bank) is operational manager

New ethical guidelines at end 2004 including active corporate governance

The Government Pension Fund produces detailed Annual Report

Ministry of Finance also requires quarterly reports

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GOOD MODEL – Norwegian Government GOOD MODEL – Norwegian Government Pension Fund – Global Pension Fund – Global

Reports open to public and presented• On website• At press conferences

Ministry• Decides strategy• Sets benchmarks and risks parameters

Norges Bank measured against benchmark

Ministry uses independent consultants to get second opinion on performance

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The Government Pension Fund - Global Annual Report containsdetailed information on: Mandate Return on Fund in that year Fixed income management Equity management Corporate governance activities Risk exposure Organisation of management Management costs Reporting of accountsAlso contains Auditors report Management mandate Organisation chart of Norges Bank Holdings of equities at year end Fixed income investments at year end

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Annual Report is model of transparency

Includes excellent features such as cost comparisons with other funds

Excellent website

Altogether very high level of transparency and accountability

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GOOD MODEL – Irish National Pensions GOOD MODEL – Irish National Pensions Reserve FundReserve Fund

Governing body Commission consisting of Chairperson and 6

Commissioners Commission is body corporate who can sue and be sued Eligibility requirements Disclosure of interest requirements Commission control, manage and invest Fund Commission accountable to Parliament Has clear investment mandate

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Investment Mandate Strictly commercial investment mandate To secure optimal financial return having regard

to: purpose of the Fund, and payment requirements of the Fund

provided the level of risk is acceptable to the Commission

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National Pensions Reserve Fund Act, 2000 provides for: Preparation of accounts and audit by the Comptroller & Auditor

General (senior auditor in State) of the accounts The publication by the Commission of an annual report of its

activities and of the audited accounts of the Fund The chairperson of the Commission to appear before and give

evidence to the Committee of Public Accounts on the policies of the Commission in relation to the Fund

The chief executive officer of the Fund Manager to give evidence to the Committee of Public Accounts on the regularity and propriety of all transactions on the Fund and on the economy and efficiency of the Commission and the Manager in regard to the expenses of operation of the Fund

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Accounts and Audits Must keep all proper and usual accounts of moneys

and other assets Must include separate accounts of administration fees

and expenses incurred by Commission Audited Accounts of NTMA (the Fund Manager) must

note record of expenses incurred by NTMA as Fund Manager

Accounts signed by CEO of Fund Manager and a Commissioner must be formally adopted by the Commission and submitted to Comptroller & Auditor General for audit not later than 4 months from end of financial year

Copy of audited account must go to Minister and be laid before each House of Parliament

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Report and Information to Minister Not later than 6 months after end of financial year Commission

must make report to Minister of its activities for the year This report must be laid before each House of Parliament Each report must include:

• Information on investment strategy• Report on investment return• Valuation of net assets and detailed list of assets• Information about investment management and custodianship

• Information on fees, commission and other expenses incurred by Commission and Fund Manager

Report shall also include any other information the Minister may direct

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Chairperson of Commission to appear before Committee of Public Accounts (PAC) PAC is parliamentary committee responsible for

examining and reporting on departmental expenditure PAC holds public hearings and conducts tough

examinations Chairperson of Commission must appear before and give

evidence to PAC at such times as PAC reasonably requests

Evidence given relates to policies of Commission, subject to confidentiality of commercially sensitive information

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CEO of Fund Manager to appear before Committeeof Public Accounts (PAC) CEO must give evidence to PAC on:

• Regularity and propriety of transactions recorded in any record subject to audit

• Economy and efficiency of Commission and Fund Manager• Systems, procedures and practices employed by Commission to

evaluate its effectiveness• Any matter affecting the Commission referred to in any report of

Comptroller & Auditor General CEO must not question or express opinions on policy of

Commission

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Other Requirements for Accountability Minister may appoint person to examine any aspect of Fund and

Commission – Fund Manager must assist this and give access to all records

Independent valuation of assets Independent assessment of investment performance Public Procurement procedures must be used for appointment of

all service providers including EU Procedures under Public Services Directive 92/50/EEC

Appointment of custodians Commitment to open and transparent reporting subject to

preserving confidentiality on commercially sensitive information

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Other Ways of Accounting to Public Fund manager website www.ntma.ie Press briefings Conference presentations

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CONCLUSIONCONCLUSIONGood Governance

Is strong feature of funds which work well Growing importance globally Some evidence that it is a driver of organisational

performance No one ideal model as it must be country specific

based on:• Capacity to regulate• Standards of accounting• Trust law• General governance quality

Must be there in legislation and in practice

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Anne Maher Chief Executive The Pensions Board Ireland 16 - 17 May 2006 EUROPEAN INSTITUTE Sovereign...

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