skip to main content
Closely examining a report using a magnifying glass

Bloomsbury blog The value of fiduciary excellence

Bloomsbury newsletter, 30 September 2014

If you ask the board members of any of New Zealand's top businesses, "What's the value of good governance?" the answer is likely to be, "It's absolutely critical."

But what does good governance mean in relation to investments?

In this article we'll look at why investment governance and due diligence is important. We'll explore what happens when due diligence is ignored or not followed, and will introduce an international best practice process and explain what it means for you.

It's hard to know the value of good governance until you see the alternative. A portfolio reviewed recently included an investment called Epic. Epic is a very small infrastructure investment company who have a concentrated portfolio held mostly in a motorway service operator in the United Kingdom.

Epic has had performance issues, including losses of over 70% of the share value, as well as eye watering fees and what appears to be near corruption.

Of course, no one can predict how an investment will perform, but there are certain things about Epic that should have caught the adviser's eye:

  • It was very small.
  • The portfolio was concentrated in basically one asset.
  • It couldn't be easily traded - once you were in it was very hard to get out.
  • The fees were far from transparent, and quite high (if you took the time to understand them).

Yet Epic raised about $100M from New Zealand investors. Why would any adviser recommend Epic? Perhaps it was a great sales presentation. Perhaps they were being told that the "smart money" was going into infrastructure assets. Perhaps it was the impressive credentials of the management team. What's clear is that proper due diligence was not performed.

A rigorous international governance standard has been developed by fi360 and the Centre for Fiduciary Excellence (CEFEX), which helps advisers who are striving to deliver the highest quality advice to clients. This standard includes a focus on the process around due diligence.

In the handbook Prudent Practices for Investment Stewards & Investment Advisors (New Zealand Edition), fi360 lays out four steps and 21 practices that make up a complete investment due diligence and governance process. To reach the required threshold for each practice, there are several criteria.

Firms that feel confident they meet all the best practice requirements of governance can apply for an audit by an Accredited Investment Fiduciary Analyst. Once they pass and receive CEFEX certification, an annual audit ensures they maintain the standards.

At Bloomsbury Associates we take due diligence and investment governance very seriously. We're interested in working with the best professionals, who follow thorough processes.

We're happy to announce that our investment governance partner, Consilium, was recently subjected to a CEFEX audit. This included a full review of their processes, procedures, documentation, minutes and files. The result was a pass, and the subsequent receipt of CEFEX certification.

Consilium is one of less than 200 firms globally that have reached this threshold for quality and best practice.

But what are the benefits to you, our clients? The primary benefit for you is confidence. It means you know that our investment policy, selection, monitoring and quality control are amongst the best in the world. Furthermore, it underscores a critical element of our services - we use an evidence based approach to construct portfolios, and we continuously collect new information to ensure our choices are prudent.

This all happens in the background, meaning that we are then able to focus on working with you to create strategies to help you to achieve your financial goals.