Institutional Investors Managing Investment Portfolios. Tieu JD Ngao
allocation: The Committee has the Investment Committee believes that the level of risk identified by the Plan is determined mainly by active asset allocation strategy of the Plan summarizes the factors that should be considered during identifying long-term investment asset allocation as:
• The term of the Plan
• What is the state's capital plan.
• the financial condition of the business.
In the process of establishing the rate of long-term asset allocation plan, the investment committee will consider prudent long-term expectations of the capital market to determine the expected return, the level of change and relationships between asset classes. Rate strategic asset allocation of the Plan will be made by the Investment Committee in each document separate asset allocation strategy.
Rebalance: Investment Committee is responsible for asset allocation decisions for the plan and will meet to consider and approve the allocation depending on the financial situation, but at least once every 3 years. Investment before the Commission to change the asset allocation, the portfolio must be balanced in each period when the market value changes. Investment Committee has delegated to the staff this task of rebalancing. After the plan has achieved the target stock allocation, the allocation of securities must be balanced against the objectives quarterly stock index using tools. Every year, active asset allocation for the investment managers will be balanced based on the initial profit target. The staff will report on the activities rebalancing the investment committee.
2.1.8. Enterprise risk management and investment activities of the DB pension fund assets.
A DB pension plan likely a major influence on the financial performance of the business financing plans, so the research on the investment activities of DB pension fund assets in relation to pensions and the objectives of the enterprise has appeared widely. In fact, we can draw some comments from observers. In terms of risk management, there are two important issues are:
1. Pension investment management in relation to the normal investment activities.
2. Contact the pension investments with pension liabilities.
To explain the first problem, in Figure 3-1, we get the relationship between the performance of the business sponsor and the return on pension assets is a factor to monitor in the assess the level of risk. We explained that if the weaker the relationship, the greater the level of risk, and vice versa. Assume that enterprise risk and risk retirement portfolio positive contact with each other, a high level of operational risk will tend to limit the amount of your retirement portfolio risk and vice versa. Although we are interested in The investment policy, our vision will be complete if we consider the different aspects of building a retirement portfolio. A question related to the issue on whether a retirement portfolio to diversify risks related to the business activities of donors. In addition, a list of risk diversification activities of donors will increase the likelihood that donors need to increase the contributions to the implementation of the responsibility to pay for retirement, donors will be in the state can afford. Consider a stock portfolio is managed actively with a large amount of assets invested in the field of information technology. Such a portfolio will be less risky for a project sponsor activities in the field of production of consumer goods capital relationship quite small with the field of information technology, rather than a financial support activities in areas related to information technology (such as a DSL equipment provider for a phone manufacturer)
For the second problem, the relationship, the goal of the management plan is to increase the likelihood that pension plan assets will be sufficient to fund operations to pay retirement benefits to request additional contributions minimum from donors. For a pension plan sufficient capital, the objective is to maintain the status of the plan (pension surplus) in relation to debt retirement. Although both problems are consistent look from the perspective of risk management, comprehensive approach to the management of rate assets / liabilities to portfolio construction has emphasized the management of investments in relation to the debt. From ALM perspective, the characteristics of risk in the investment policy must be described in relative terms. The key change from the expected variation of surplus pension assets to pension and abilities related to the expected level of the state capital in an appropriate time frame. In fact, we can use tools such as modeling to explore whether certain portfolio can be expected to satisfy the goals that the relative risk. Variability of the pension surplus is small if the change of the value of plan assets proportional to the change of pension liabilities. Because the pension liabilities sensitive to interest rate changes, plan sponsors emphasize that aspect ALM tend to be more beneficial when using multiple rate-sensitive securities (especially left shares).
2.2. Defined contribution plans: The environment and the investment climate
Two types of defined contribution plan is a plan that the investment activities of the property be conducted by donors and investment plan that works is controlled by the participants. Investment policy established by the plan to control by the donor is a simple operation of the planning process DB, here we will focus on the type of plan directed by participants.
Investment issues of the DC plan as follows:
• Diversify. Sponsors must provide a list of investment options allow participants to set up the portfolio accordingly. For example, in the United States, section 404 (c) of ERISA to establish a safe landing for DC project sponsor when there are recommendations on investment options are not effective or not careful if design or ( 1) at least three investment options to diversify the opposite of each other and (2) provision for participants can switch freely between the options. DC plan sponsors conducted by members often provide sophisticated retirement planning tools such as Monte Carlo model to support decision-making process of participants.
• Securities business. Understanding between corporate securities financing should be limited to ensure that the assets of participants is sufficiently diversification.
Even for DC plan led by members, donors still have to have a plan drafted investment policy. Investment policy document in which donor perspective plan satisfies the responsibility of the guardian to make a complete process for the selection of investment options provided to participants as well as for the periodic evaluation of these options; moreover, established a policy of investment may be required by law. DC plans, however, the investment policy is quite different than the DB plan. A DC investment policy making process to ensure that the wealth of the objectives and constraints of individual investors yet clear. Here is an example of a DC investment policy.
2.2.1. Models and limited purposes in the course of the creation of DC plan sponsors do not set goals and limitations; participants themselves out own risk and profit targets as well as the term processing. Donors to provide resources and training, but participants are responsible for the selection of a target risk and profit to light own financial situation, objectives and risk attitude.
As noted above, participants in DC plans bear the investment risk would result. Therefore, an investment policy for DC plans to meet a very different role than a DB plan's investment policy. For example, an investment policy for DC plans is conducted by members of monitoring document which describes the investment strategy and the alternatives available to group members which have the conflicting objectives and constraints. A policy such investment is necessary to become a general text on the principles rather than a monitoring investment policy for a specific member. Example 3-10 provides an excerpt of an investment policy for a DC plan directed by its members.
Purpose: The purpose of this investment policy is to support the members of the Retirement Policy Committee (RPC) to set up, monitor, evaluate and modify an effective investment program is made to the defined contribution plan (the Plan) funded by DMSR company (BMSR). Powers to set out the responsibilities of this is due to the action of the board BMSR meeting on 26/03/2002. The purpose of this investment policy are as follows:
• a clear distinction between the responsibilities of the RPC, plan members, fund managers and guardians of Planning / data holder selected by RPC
• Provide a description of the alternative investment options available to plan members.