OGPF increases alternatives weighting
Osuuspankkien eläkekassa is the pension institution responsible for the TEL pension guarantee (obligatory second pillar) of the employees of OKO Bank Group. At the end of 2001 the pension fund comprised of 355 employers, with a total of 9,229 employees on a TEL contract.
The investment operations of the pension fund were re-organised in 1999 by concentrating the investment units of the insurance institutions of the group (OKO pension fund, OKO pension foundation, life insurance company Aurum and OKO insurance company (OVY)) into an investment organisation within the pension fund. The total investment capital market value of the institutions is around e2.8bn.
The basic asset allocation and respective benchmark indexes of the pension institutions are defined in the investment plan. Transparency and investability are the main criteria in choosing the indexes. The latter means the availability of index-based products (passive funds and derivatives). The investment plan is reviewed annually.
Alternative investment has been given an increased weighting in the basic allocation of the fund in 2002. At the moment, 7.5% of total investment capital has been allocated to hedge and capital investment funds.
Property strategy has been developed together with equity investments. This has mainly involved targeting investments in equity outside the more volatile capital city area property market. Possibilities of investments in foreign property markets, mainly through property funds, have also been investigated.
During the year the chief investment officer (CIO) and the investment committee have a right to deviate from the investment plan within the fund’s framework. Tactical allocation changes aim to take advantage of market volatility and also regulate the risk level of the total investment capital. The goal of the investment operation is to keep the predicted volatility as stable as possible.
The board accepts the investment plan annually, defining the aims of the investment strategy, the investment principles (basic allocation, expected returns and risk) and the allowed investment products, including restrictions within. In addition, the investment plan comments on the choice of asset managers and the reporting of risks and returns. Attached to the investment plan is a written statement on pension responsibility and the long-term development of pension payments and their influence on the investment strategy.
The CIO, or the CIO and the CEO/vice-chairman of the board make tactical allocation decisions within the investment plan’s jurisdiction. The company board decides on major deviations during the year. External asset managers are not given combination mandates.
Active risk is taken when and where it is believed to give positive results. At the moment about a third of the liquid portfolio is under active management. The rest of the capital is invested mainly through index funds. Passive management share varies according to asset class. Almost all Euro-zone equity investments and around 50% of US and 30% of UK equities are indexed.
In-house direct investments aim to create added value in some restricted sub-markets. Within the bond market these include government bonds, asset-backed securities (ABS) products and capital loans issued by banks. Other corporate bond investments are mainly made through funds. Some domestic share portfolios are managed in-house. About half of the liquid domestic portfolio and around half of the direct investments are managed at the pension fund.
Since the beginning of the year the investment and risk management units have used Barra Orion software, which enables effective management of the whole liquid capital active and total risk (shares and bonds). In asset manager choice, due to cost-effectiveness, institutions within the group co-operate, but there is no obligation to use the group’s services. The mandates always concentrate on a particular market. Opstock, the asset manager of the OKO group manages European and some of the Finnish share and bond portfolios.