Day 1
The fundamentals of pension funds
· The controversy surrounding pension funds
– The global pension 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
Case study: The pension fund crisis.
· 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
Case study: A multiple choice test on the basics of the pension fund business and pension fund terminology.
· 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
Day 2
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
Case study: Pension fund liability study
· 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
Case study: The funding status of a pension fund
· 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
Case study: Asset / liability management
Day 3
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
Case study: Portfolio optimisation
· 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
Case study: Boots PLC – pension fund: strategic asset allocation and selection of external fund managers
· 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