Day 1

The Fundamentals of Pension Funds

• The global pensions crisis – European, U.K. and American perspectives
• The rising costs of funding pension schemes
• Pension fund deficits, sovereign debt and sovereign default risk
• Rising longevity and rising dependency ratios
• Falling real and nominal returns
• Ruptures in the investment value chain
• Gaps in governance structures
• Do Asia Pacific pension funds suffer the same problems?
• The growing importance of Asia Pacific pension funds in global financial markets
• Characteristics of the Australian and New Zealand pension markets
• Overview of Sovereign Reserve Pension Funds

• The role and purpose of pension funds
• The role and function of the various parties – trustees, sponsors, actuaries, consultants and investment managers
• The link between asset allocation, capital structure and financial risk
• The pension fund as a financial business and as part of the company
• Sources of wealth in a pension fund
• The fundamental pension equation
• The pension fund map and organisational structure – know your stakeholders
• Creating value in pension funds

• An overview of social security and state pension schemes
• General characteristics of pay-as-you-go schemes
• The changing role of private pensions
• Plans for reforming state social pensions
• Public-private, DB-DC, mandatory-voluntary, means tested-non means tested
• Defined benefit pension schemes
• Defined contribution pension schemes
• Hybrid defined benefit, defined contribution schemes
• Should DB pension schemes be career average or final salary?

• Why will markets remain volatile for the next 5 years
• How can pension plans convert volatility into an investment opportunity
• As old style diversification no longer works, what will the new style look like
• Where will the return come from
• What do pension funds need to do to ensure that investing is not a loser’s game for them

Day 2

Pension Fund Asset-Liability Management

• Measuring and modelling a pension liability
• Selecting the appropriate discount rate
• The actuarial value of liabilities
• The liability return as a hurdle rate
• Impact of liabilities on investment strategy
• Liabilities and funding policy
• Risk management and liabilities
• Theory of surplus returns and surplus asset allocation
• Surplus risk and the risk-adjusted change in surplus
• Funding probabilities

• Pension funding policies
• Determination of the required funding contribution
• The funding target
• The pace at which the target is attained
  - Funding policies and benefit policies
  - Building and accumulating reserves in the fund
  - The lack of symmetry in the treatment of surplus and deficit
  - The relationship between pension assets and liabilities

• Static portfolio analysis for asset allocation
• Dynamic portfolio analysis with assets and liabilities
• Dynamic models for asset-liability management in defined benefit pension funds
• Minimising surplus risk and contribution risk
• Contribution and benefit policies for underfunded schemes
• Developing a strategic benchmark in an asset-liability framework
• Integrated asset-liability management

• What is asset-liability modelling and why do it?
• What can an asset-liability study realistically achieve?
• Current issues in asset-liability modelling
• The liability matching asset portfolio - LMAP
• Can asset-liability modelling generate a LMAP?
• The actuary’s confidence in the economic/demographic projections and correlation assumptions

Day 3

Pension Fund Investment Strategies

• The optimal asset allocation of a pension fund – factors to consider
• The fund manager’s relationship with the trustees
• Deciding on the appropriate portfolio structure and benchmark
• Portfolio optimisation with drawdown constraints
• Strategic asset allocation in the presence of liabilities
• Portfolio diversification – the importance of correlation
• The target return and minimum acceptable return
• The return orientation of the Pension Fund – relative, absolute, unconstrained
• Core/explore/satellite approaches
• The importance of alternative assets
• The importance of inflation-hedging assets

• The move away from static benchmarks
• Dynamic approaches to asset allocation – tactical, integrated and insuredAlpha, beta and market timing
• Market cycle analysis
• Factors affecting asset prices in different phases
• The equity cycle and how it interacts with the interest rate and credit cycles
• Sector and style allocation at each phase of the cycle

• Liability-matching strategies – LDI investing, duration matching and cashflow matching
• Strategies with upside – unconstrained investing, portable alpha and dynamic contingent immunisation
• Limiting the sponsor risk – absolute return and liability hedging
• Generating real returns – new asset classes and structural alpha
• Target date investing and target date funds
• Lifecycle investing and lifecycle funds

• Setting an objective for full funding
• Defining a plan to achieve it
• Liability issues to address before implementing
• The mechanics of how to make the plan successful
• Governance options
• The end game

Day 4

Actuarial Considerations, Scheme Design and the Annuity Market

• The role of the pensions actuary
• The actuaries’ contribution to the existence of pensions
• How the role of the actuary is changing
• Advocate or broker; calculator or auditor
• Conventional pension accounting and actuarial standards
• How useful are conventional actuarial and accounting methodologies

• The actuary’s choice of discount rate
• Why the confusion and controversy surrounding the choice of discount rate
• Lessons from financial economics and modern portfolio theory
• Demographic and economic/financial assumptions
• Actuarial value of assets
• Actuarial value of liabilities
• Moving to an economic accounting system for pensions
• Risk does not diminish with time, it accumulates

• DC scheme design in the accumulation phase
• Risks confronting the DC member
• Risk and control variables in stochastic pension modelling
• Charges attached to DC schemes
• The distribution phase of DC pension schemes
• Optimal design of DC schemes during the distribution phase
• The annuitisation decision

• Overview of the annuity markets
• Different types of annuity – purchase arrangements, coverage, variations, payment terms
• ILRIPs – Investment-linked Retirement Income Programmes
• Decomposition of annuity charges
• Designing and stress-testing the various ILRIPs

• Risks and rewards of infrastructure as an asset class
• What are the characteristics of infrastructure investing that appeal to pension funds
• The unique characteristics of infrastructure
• Opportunities and pitfalls of infrastructure investing for pension funds
• What is required for successful infrastructure investing

Day 5

Pension Risk Management, Pension Reporting and Governance

• Defining pension fund risks
• Different types of risk and what they mean for a pension fund
• Asset-liability risk, tactical risk and manager selection risk
• Funding risk
• Solvency risk
• Surplus risk and contribution risk
• Counterparty credit risk
• Interest rate mismatch risk
• Tracking error, VaR and downside risk measures

• What exactly is longevity risk
• De-risking a pension fund
• The potential impact of ageing populations on asset returns
• Longevity risk transfers and pension buy-outs and pension buy-ins
• The development of mortality-linked securities and derivatives
• Longevity bonds and longevity swaps
• Hedging pension liabilities with longevity-linked securities and derivatives

• Key issues in pension scheme reporting
• Developing appropriate reporting mechanisms
• Reporting on funding status
• Trustee reporting
• Performance and attribution reporting
• Risk management reporting

• The pension mission statement
• Best practice governance of pension schemes
• Trustee board effectiveness
• Legal and governance structure of pension funds
• Codes of governance for pension funds
• Ways to improve pension fund governance
• Lessons from the Netherlands and Australia

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