Simon Wong is partner at investment firm Governance for Owners, adjunct professor of law at Northwestern University School of Law, and visiting fellow at the London School of Economics. He can be found on Twitter at @SimonCYWong. The opinions expressed reflect his personal views only.

There is much to commend in the Kay Review final report. It contains a rigorous analysis of the causes of short-termism in the UK equity markets and wide-ranging, thoughtful recommendations on the way forward.  Yet, it is surprising that John Kay omitted one crucial reform that would materially affect of the achievability of several of his key recommendations – shortening the chain of intermediaries, eliminating the use of short-term performance metrics for asset managers, and adopting more concentrated portfolios.  What’s missing?  Reconfiguring the structure and governance of pension funds.

A major challenge facing pension funds in the UK and elsewhere is the lack of relevant expertise and knowledge at board and management levels.  Consequently, many rely heavily – some would argue excessively – on external advisers.  I have been told by one UK pensions expert that inadequate knowledge and skills within retirement funds means that  investment consultants are effectively running most small- to medium-sized pension schemes in Britain. Another admits that trustees, many of whom are ordinary lay people with limited investment experience, are often intimidated by asset managers.

Because these funds cannot afford to build in-house investment capabilities, they outsource this function to external managers.  What’s more, some pension funds will utilize intermediary “funds of funds” to help them make investment decisions, thereby extending the equity ownership chain.

Strengthening board and management capabilities at pension funds would bring substantial benefits to their schemes and the broader economy.  First, trustees and executives would be better equipped to make investment and other key decisions on their own, including questioning prevailing practices that may benefit investment intermediaries more than them.  For example, they could challenge their investment consultants and fund managers on why adequate diversification requires holding 8,000-10,000 stocks rather than a more manageable 3,000-4,000 (or an even smaller number).