Pension Fund Strategy Training

The fundamentals of pension funds

The controversy surrounding pension funds

• The global pensions crisis – European, U.K. and American perspectives
• The pension fund as a financial business
• The link between asset allocation, capital structure and financial risk
• The challenge to the cult of the equity
• The rising costs of funding pension schemes

Pension fund basics

• The role and purpose of pension funds
• The role and function of the various parties – trustees, sponsors, consultants and investment managers
• The pension fund as financial businesses and as part of the company
• The importance of the pension fund to corporate balance sheets
• Sources of wealth in a pension fund
• The fundamental pension equation
• The pension fund map and organisational structure
• The pension fund balance sheet
• Creating value in pension funds

The different types of pension scheme

• The principles to be followed in developing scheme’s approach :
• Tailoring an investment strategy
• The risk tolerance of the sponsor
• Which risks to be managed
• Factors influencing investment strategy :
• Risk attitude
• Current solvency
• Impact on sponsoring company
• Age profile of scheme members
• Views on financial markets
• Defined benefit pension schemes
• Defined contribution pension schemes

Pension fund assets and liabilities

Pension fund liabilities

• Measuring and modelling a pension liability
• The actuarial value of liabilities
• The liability return as a hurdle rate
• Impact of liabilities on investment strategy
• Liabilities and funding policy
• Risk management and liabilities
• The risk-adjusted change in surplus
• Surplus risk and the risk adjusted change in surplus
• Funding probabilities

Pension funding policies

• The funding target
• The pace at which the target is attained
• Overall fund risk
• The lack of symmetry in the treatment of surplus and deficit
• The relationship between pension assets and liabilities

Asset / liability management tools

• Current issues in asset/liability modelling
• Static portfolio analysis for asset allocation
• Dynamic portfolio analysis with assets and liabilities
• Dynamic models for asset liability management for defined benefit pension funds
• Developing a strategic benchmark in an asset / liability framework
• Integrated asset/liability management

Pension fund investment strategies

Portfolio optimisation

• Portfolio optimisation with drawdown constraints
• Asset & liability management for long term investors
• The importance of the strategic asset allocation decision
• Dynamic portfolio models for asset allocation
• Global equity and bond investing for pension funds
• Currency hedging and modelling techniques

Strategic asset allocation

• A brief history of risk and return
• Review of the characteristics of the major asset classes
• “There is no free lunch”
• Portfolio diversification – the importance of correlation
• The efficient frontier, efficient portfolios and optimal portfolios
• The absolute vs. relative return decision for the pension fund
• What is asset allocation and why do it
• The importance of strategic asset allocation
• A comparison of the different approaches to asset allocation
• Benchmarks and benchmarking

Benchmark timing and tactical asset allocation

• What is tactical asset allocation and why would a pension fund do it
• Defining the dimensions of a tactical framework for pension funds
• Core/Satellite approaches
• The macroeconomic approach to tactical asset allocation
• The valuation approach to tactical asset allocation
• Tactical style and sector rotation

Dynamic approaches

• Liability matching strategies – duration matching and cashflow matching
• Strategies with upside – dynamic contingent optimisation and portable alpha
• Limiting the sponsor risk – absolute return and liability hedging
• Generating real returns – new asset classes and real alpha