Most companies offer their employees pension plans which allow those employees to earn after retirement. These companies manage any contributions through investments. The employer invests these amounts on the employee’s behalf. These earnings then generate income, which funds future pension payments to employees. Companies may also hire an investment committee to look after these plans.
What is an Investment Committee?
An investment committee represents a committee responsible for planning and overseeing an investment plan. Usually, companies use investment committees to manage retirement plans. However, these committees also have other responsibilities. The scope of their work depends on the company and its needs. However, investment committees can handle all sorts of responsibilities associated with investments.
Investment committees are only responsible for planning and oversight. Usually, a company’s Chief Investment Officer performs the duties associated with managing investments. Therefore, both a company’s CIO and its investment committee must work in unison to achieve its investment goals. Unlike some other committees, having an investment committee is not mandatory. However, companies may still establish one as a part of their risk management strategy.
What does an Investment Committee do?
As mentioned, the scope of the work that an investment committee performs depends on the company. Typically, however, some of the common responsibilities that the members of an investment committee share are as follows.
Develop investment policy
The primary role of an investment committee within any company is to help establish an investment policy. The committee does so through a written document known as the investment policies statement. This policy signifies what investment the company needs to make, how it should manage those investments, and how to choose its managers. The investment policy statement also defines the criteria for measuring the plan’s performance.
Gauge investment performance
The investment committee, due to its oversight responsibility, is also responsible for gauging investment performance. The committee overlooks every investment and measures its performance against the criteria defined in the investment policy statement. The committee also tracks changes in the investment management team, the fees and expenses for it, the investment style, and much more.
Manage implementation of investment strategies
The investment committee not only defines the investment policies for a company but also manages the implementation. While the committee cannot finalize investments, all these decisions must get approved by the investment committee. Usually, they assess whether the investment meets the objectives set in the investment policy statement.
Perform financial reviews
The investment committee within a company is also responsible for reviewing the financial aspects of an investment. As mentioned, they usually compare these financials with the expected amounts according to the investment policy statement. The investment committee also prepares a report that it then presents to the board of directors.
Ensure regulatory compliance
The investment committee is also responsible for ensuring a company complies with all applicable regulations. However, these regulations only apply to investments. As mentioned, the investment committee is usually responsible for pension plan management. In that case, the committee is responsible for ensuring compliance with The Employee Retirement Income Security Act.
When companies make an investment, they may hire an investment committee to plan and oversee the operations. This committee usually helps companies with pension plan management but can also perform other duties. Within any company, investment committees have several responsibilities. Some of these responsibilities are above.