INVESTMENT STRATEGY CONSULTING
Each pension fund’s unique circumstances will determine the Investment Policy Statement.
The Investment Policy Statement then gives rise to the broad investment strategy for the fund. This investment strategy is then communicated to the fund’s investment managers via the investment mandate. Our firm consults on all the three aspects in this stage of the investment process.
The steps involved in the process include:
THE ASSET LIABILITY MODELLING
Evaluating the liability against fund assets, projecting the growth of liabilities into the future and then calculating the requisite asset growth to match the growth in liabilities.
THE RISK TOLERANCE EVALUATION
Evaluating how much risk can the fund sustain in its investment portfolio. Factors impacting on the liquidity needs of the fund are the major determinants of risk. This includes inter alia the average age, staff turnover, ratio of active to retired lives etc. The guiding principle is that the fund should have the requisite cash flow whenever it falls due.
EVALUATION OF THE PREVAILING INVESTMENT ENVIRONMENT
Developing a view on whether past risk and return patterns in the various asset classes are expected to prevail going forward. This will inform on the asset allocation the investment strategy will adopt.
DETERMINING THE STRATEGIC ASSET ALLOCATION
This is the asset split that the fund is expected to observe in the foreseeable future. The risk tolerance determined above as well as the targeted returns of the fund assets are the major determinants of the asset allocation strategy.
TACTICAL INVESTMENT LIMITS
The risk tolerance of the fund will determine how much leeway the investment managers are given around the strategic benchmark in order for them to generate out performance.
ARTICULATION OF THE INVESTMENT MANDATE
This captures the investment guidelines that the fund’s investment managers must follow at all times. This will be both the strategic investment benchmark as well as tactical deviation limits that can be tolerated by the fund.