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Optimal design of investment committees

Author

Listed:
  • Bernd Scherer

    (EDHEC Risk Institute)

Abstract

Investment committees are widespread across asset management firms, private and public institutional investors or family offices. Poorly designed boards can potentially destroy substantial value in the investment management industry, yet little research has been undertaken on their optimal design. From my 30-year experience as an investor, CIO for various firms and academic researcher, I believe that typical investment committees come with unaddressed challenges. Using qualitative group discussions to create a consensus view results in biases (group shift bias), incentive problems (free-rider) and aggregation problems. How can we ensure that all investment views enter the investment committee equally? In my opinion, we can learn from evidence gathered in social psychology how committees can make better investment decisions. I suggest creating an algorithmic consensus by averaging anonymous member portfolios instead of informal qualitative discussions towards the end of an investment committee meeting.

Suggested Citation

  • Bernd Scherer, 2024. "Optimal design of investment committees," Journal of Asset Management, Palgrave Macmillan, vol. 25(2), pages 129-135, March.
    • Handle: RePEc:pal:assmgt:v:25:y:2024:i:2:d:10.1057_s41260-023-00330-3
    DOI: 10.1057/s41260-023-00330-3
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    References listed on IDEAS

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    3. Sharpe, W F, 1981. "Decentralized Investment Management," Journal of Finance, American Finance Association, vol. 36(2), pages 217-234, May.
    Full references (including those not matched with items on IDEAS)

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