by Noriyuki Morimoto
Institutional investors are investors that have a decision-making body at the top of their organization. But decision-making by that body is a formality, merely an approval procedure for decisions made by subordinate divisions. In other words, the organization is a hierarchy of responsibilities; substantive discussions and decisions are made at the frontline of investment, not at the top layer, which is simply there to absorb the frontline decisions into the responsibilities of the organization.
At the frontline of investment is the asset management division overseen by a chief investment officer and composed of investment professionals. Since this division is not large, and is unified by professional expertise, investment decisions are made naturally in the operation of the business, under the supervision of the chief investment officer and allocation of responsibilities according to the capabilities of the organization’s members.
In contrast, the members of the decision-making body are generally not experts in investment. The decision-making body does not have expertise, but by approving the investment decisions of experts, it is serving a check-and-balance and control function.
De facto decisions have already been made as expert judgments within the asset management division at the lower layer. However, those decisions cannot be enforced without institutional decisions as a matter of organizational governance. Conversely, there is no role for an institution more important than to incorporate a function of governance by making institutional decisions a condition of execution.
In the first place, it is impossible to make investment decisions by consensus within an institution. All the institution can do is to choose whether to approve or reject a matter that has been fully discussed and effectively decided at the frontline. And unless the case is seriously flawed, the matters are not expected to be rejected.
Chief Executive Officer, HC Asset Management Co.,Ltd. Noriyuki Morimoto founded HC Asset Management in November 2002. As a pioneer investment consultant in Japan, he established the investment consulting business of Watson Wyatt K.K. (now Willis Towers Watson) in 1990.