The aim of the Cepsa Group Pension Fund is to achieve adequate returns for the members and beneficiaries of the scheme, over the medium and long term and using a low risk profile. The fund defines ‘adequate’ as two to three points above the Spanish consumer price index. As a result, the portfolio is of the mixed fixed income investment type, with a maximum of 30% on variable income investments.
Thanks to its operating and investment philosophy, including tight control over investment decisions, the fund has achieved consistently high returns, giving it a high ranking from Inverco, the Spanish Association of Investment and Pension Funds; results over recent years have placed it in the top echelon of Inverco’s quarterly returns for company pension schemes.
As at 30 June 2005, the fund had the highest returns of any Spanish company scheme over three and five years. Its annualised return for these periods was 12.35% and 8.11% respectively. Over the 12 months to the same date, the fund came seventh with a return of 16.57%. However, five of the funds ranked above Cepsa are very small (less than €5m in size, compared with €247.8m as at 31 August 2005).
The cornerstone of the operating philosophy is tight control, the detailed investment policy being proposed by its investments sub-committee and approved by its control committee. Investment decisions are taken by the sub-committee.

Investment management is carried out internally by a team of two, who report to the investments sub-committee. The sub-committee also relies on advice from other members of the control committee, the manager (SCH Pensiones) and the external advisers (mainly UBS).
Investment policy has comprehensive rules relating to risk management and control. These include restrictions on each investment as a percentage of assets. For fixed income investments, there are minimum investment ratings, with a duration based on the level of interest rates.
The variable income portion of the portfolio focuses on value, but does not have a benchmark. When selecting stocks, there are maximum levels for the p/e ratio and minimum levels of profitability for dividends. Companies must have a minimum market capitalisation.
Variable income investments make up 10–30% of the resulting portfolio, with non-euro securities limited to 5%. Fixed income is 35–85%, guaranteed variable income and convertible bonds 5–15%, and real estate up to 20%.

Highlights and achievements
Cepsa Group Pension Fund has a simple overriding objective: to achieve returns between two and three points over the Spanish CPI, at a low level of risk. With a well-defined operational hierarchy and chain of command, coupled with a clear investment philosophy and detailed limits on investment, the fund has been able to achieve stellar performances over the past few years.
The fund is the best performer of all Spanish company pension schemes over three and five years, and in the top handful over one year.

Fonditel Red Activa is a personal pension scheme that includes part of an occupational scheme run by another company. It is one of the outstanding pension funds in Spain in two main areas – risk management, and member services and communication.
Since it was set up in 1999, Fonditel Red Activa has made a total return of 18.65%. It has always been the top fund in its Inverco sector and has always outperformed the sector average for both personal and corporate schemes in Spain.
The model portfolio uses a core/satellite approach. The core, which makes up most of the portfolio, tracks the relevant indices for equities and bonds. In the satellite, the fund uses multi-asset programmes intended to limit the capital employed and add value on uncorrelated assets. The aim is to do this while avoiding systematic risk as far as possible.
Risk management is of paramount importance. The fund says risk is a scarce resource and it is just as important to consider it as an input to the investment process, as it is to limit potential loss. The fund’s risk management means monitoring the level of risk and identifying possible sources.
Volatility is calculated on a daily basis, and weekly adjustments made to keep this within assigned limits. The fund says it is possible to achieve a reasonable degree of control by following the vector autoregressive methodology.

All this has resulted in quite remarkable outperformance. Over the 12 months to 30 June 2005, the fund returned 13.65%, compared with 5.99% for the average individual pension scheme. Over five years, the return was 12.07%, compared with a sector average of 0.46%.
This has been achieved with relatively low volatility – for example, for the period from December 2002 to June 2005, the fund returned 17.23% with a volatility of 7.99%, while the benchmark returned 11.38% with a volatility of 14.00%.
However, high returns are not enough if pension scheme members cannot get the advice and help they need.
The fund’s reports to members and beneficiaries include a quarterly operations report, while individual plans can be monitored via its website ( Clients can access this directly, and track the movement of their personal and company contributions, as well as the performance of shares in their fund. Any queries can be e-mailed to the fund, which means they can be dealt with quickly.
Communication with other stakeholders includes monthly analysis reports of the pension plans and portfolio sent to the fund’s trustees.

Highlights and achievements
Fonditel has a proactive approach to risk management which has been one of the keys to its performance. While aiming to avoid systematic risk, the fund sees risk as a valuable input to the investment process. The fund’s risk management means monitoring the level of risk and identifying its possible sources. Volatility is regularly calculated.
The result has been returns placing the fund top in its Inverco sector, with relatively low volatility. The fund has made it easy for members and beneficiaries to monitor their own plans.