At Belgian professional medical sector fund Amonis, the equity-bond ratio is exactly level at the moment - quite a change from the ratio before 2000 which was far more heavily weighted towards stocks. “Before then we had about 62% in equities and 30% in bonds,” says chief financial officer Tom Mergaerts. “We gradually changed that over to an equal percentage.”
At the time, the shift came not so much as the result of an active decision, he says, but rather as an effect of the markets leveling out. However, it did then become a tactical decision not to increase the equities weighting, he says.Currently, Amonis has 42% in equities and 42% in bonds. “We do not consider a 100% bond portfolio as a possibility for covering our liabilities,” says Mergaerts. “The horizon for investing is rather long; we are still a net growing fund, so we can take more investment risk.”
The fund now has 7% of its assets invested in alternatives, with half of that in commodities and the other half invested for absolute return, in a fund of hedge funds. There are no plans to increase the absolute return portion at the moment. “We have just started out investing in absolute return… it is part of the learning process and the evolution in the fund management,” says Mergaerts.
Through the fund of hedge funds, Amonis has exposure to 19 separate underlying hedge funds. It is not a standard fund of hedge funds however; a fund of funds manager acts as an investment management consultant, choosing underlying hedge funds and the allocation within the limits of a very detailed investment management agreement. Amonis spent two years conducting a search, during which it analysed all the ways it could possibly get absolute return exposure.
A further 9% of the pension fund’s assets are invested in real estate, in the form of property shares.
The board at Amonis has set limits set on how far portfolio levels can stray at any given point from the strategic asset allocation. “Every portfolio can deviate a certain proportion from its strategic allocation,” says Mergaerts. “When those limits are reached, there’s a rebalancing.”
However, the limits take the form of a corridor, which ensures that rebalancing does not take place when asset levels have strayed only marginally. The minimum limits are there to limit transaction costs, he says.
There is no strategic allocation to cash, although the pension fund does of course hold cash at particular points in time for liquidity purposes. For example, right now, says Mergaerts, the board has taken a decision not to invest in the portfolio but to preserve incoming pension premiums as cash.
The portfolio is reviewed on a continuous basis, he says, looking at elements such as the return, the volatility, the value at risk, trading activity and trading costs. “Currently, we are constructing an integrated asset liability model that should be a guide for asset allocation, and I think the major challenge ahead of us will be implementing the results of those models,” says Mergaerts.
If the results from the system turn out to be very different from the asset allocation levels as they are today, then it will be a real challenge deciding how and whether to implement them, he says.
The new system is set to be in place at the end of this year, and the fund’s decision-makers will then have to see how it can be combined with other asset allocation. “If it deviates from (the current allocation), then a lot of discussion will ensue,” he says. The programming for the new system has been done by Ortec, he says.
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