Measuring and Managing Risk, Return and Incentive Compensation at apg Stefan Lundbergh, Head of...
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Transcript of Measuring and Managing Risk, Return and Incentive Compensation at apg Stefan Lundbergh, Head of...
![Page 1: Measuring and Managing Risk, Return and Incentive Compensation at apg Stefan Lundbergh, Head of Innovation Centre, APG Investments Onno Steenbeek, Head.](https://reader034.fdocuments.in/reader034/viewer/2022051619/56649e7a5503460f94b7a155/html5/thumbnails/1.jpg)
Measuring and Managing Risk, Return and Incentive Compensation at apg
Stefan Lundbergh, Head of Innovation Centre, APG Investments
Onno Steenbeek, Head Corporate ALM and Risk Policy, APG
ICPM meetingToronto, 3 June 2008
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Agenda
1. APG: new kid on the block
2. Starting point: financial strategy
3. Risk management
4. New Portfolio structure (LHP-ROP)
5. Innovation
6. Challenges
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Top 10 assets pension investors
Source: P&I/Watson Wyatt World PF 300, 2007. For APG combined figures for government, education and construction sector pension fund assets.
0
50
100
150
200
250
300
350
400
450
500
Government,Japan
APG,Netherlands
Government,Norway
CaliforniaPublic
Employees
NationalPension, Korea
FederalRetirement
Thrift
GEPF, SouthAfrica
California StateTeachers
New York StateCommon
LocalGovernment,
Japan
1.000
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2. Starting point for clients: financial strategy
Step 1: pension deal
Step 2: expected cash flows (liabilities)
Step 3: utility function Board of Trustees
Step 4: financial strategy
Step 5: strategic investment plan
Step 6: current asset mix
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Crucial tool: ALM
Probability underfunding in 12 months < 2,5%
Currentposition
Expectation
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Most important tools:
a) Conditional indexation
b) Diversification
c) Duration extension
d) New portfolio structure: LHP-ROP
2. Risk management at the fund level
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2a. Conditional indexation
100% indexation
+ catch-up
ind
exa
tio
n
100%
104,3%
140% funding ratio
0%indexation
Funding ratio1 November: 131,2%Example: 130%
105%
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2d. LHP - ROPStrategy derived with participants in mind
• Pension Investor ≠ General Asset Manager
• Risk free Dutch linker with 17 years to maturity
• Objective High and stable long-term real returns
• Restrictions Mismatch risk• Horizon Client (15+ years, real)
Regulator (1 year, nominal)
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Theory – Finance 1.1
LHP (ILB+…)
Best Mix of Stocks, Bonds and other assets (ROP)
Conservative Investor
Bonds
Stocks
Aggressive Investor
Moderate risk averse
investor
Risk
Expectedreturn
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Simple on the outside, complex inside
ROP
LHP
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• Idea generators our 450+ professionals• Decision body Innovation Committee• Operational body Innovation Centre• Innovation process stepwise with low entry hurdle• Capital allocation 2 percent of assets• Continuation safe environment, opportunity
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Innovation Process
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Example 1: Timberland
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Example 1: First investment
Global Solidarity Forestry Fund
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Example 3: Landfills
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Challenges
• Culture and Attitude
• Competitive remuneration
• Organizational focus on investment RETURN
• ALM as integrated part of pension fund investing
• Augment collective pension solutions
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Concluding remarks
• Pension Investor ≠ General Asset Manager
• Our approach is based on our situation
• We explore our unique advantages
• Open to innovate with peers and likeminded
Complex + challenging + difficult = interesting
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Thanks for listening