Improved Risk Reporting with Factor-Based Diversification Measures

Improved Risk Reporting with Factor-Based Diversification Measures — February 2014

4. Empirical Analysis for Pension Funds

2011. It is established as an independent administrative institution and follows a pay-as-you-go pension system. Its role is mostly to manage and invest the Reserve Funds of two government pension plans entrusted by the Minister of Health, Labour and Welfare: the Employee’s Pension Insurance and the National Pension. Since it works as a pay-as-you-go pension system, GPIF has a social responsibility toward Japanese citizens and residents. Its portfolio investment decisions are closely related to this task and this is why this pension fund is mostly invested in domestic fixed income (almost 70% in 2012 and up to 75% if we include international bonds). The rest of the portfolio is invested in domestic and international equity. This type of investment decision is meant to insure constant future cash flows (bond investments) while trying to get access to higher gains (equity investments) with moderate risk (small portion allocated to this asset class). Government Pension Fund (GPF) is a Norwegian pension fund meant to invest the surplus generated by the Norwegian petroleum sector. This fund has been established in order to smooth out the effects of oil price wavering and to better manage an expected future decline of income in this sector. The Norwegian Central bank manages this fund through Norges Bank Investment Management (NBIM). The size of its assets under management reached US$ 575,527 million at year-end 2011. NBIM orientates its portfolio management decisions towards equity and fixed income asset classes. Since 2010, it invests in real estate asset class as well but this type of investment still represents a minor part of its portfolio’s allocation.

Stichting Pensioenfonds ABP means ”National Civil Pension Fund”. It is a Dutch pension fund for employees in the government, public and education sectors in the Netherlands. At the end of 2011, its assets under management reached the amount of US$ 320,356 million. Unlike the two first pension funds, ABP portfolio seems to be invested in a lot of asset classes. In 2012, this fund invested in domestic and international fixed income (about 30% of its total portfolio), high-yield bonds, inflation- linked bonds, domestic and international equities (about 30% of its total portfolio as well), private equity, commodity, real estate and other alternative investments. Korea National Pension Service (KNPS) is a South Korean public pension fund. It is the main and biggest national pension fund in Korea and managed at the end of 2011 US$ 313,981.00 million amount of assets. This pension plan is a compulsory coverage for Korean employees and employers in any workplace with one or more employees. Any foreign worker settled in South Korea, regardless of its age, workplace and number of employees, is also included in this mandatory pension plan. National Pension Service invests in domestic and international fixed income (65% in total, 60% in domestic bonds in 2012), in domestic and international equities (around 30% of their 2012 total portfolio) and in dedicated alternative portfolios (around 10% of its total portfolio in 2012). Federal Retirement Thrift Investment Board (FRTIB) is an independent agency of the US government. It has been established by the Federal Employees Retirement System Act in order to administer the Thrift Savings Plan (TSP). TSP is a defined contribution

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An EDHEC-Risk Institute Publication