CERN Pension Fund Investment Report (as of 2nd quarter 2014)
The investment mandate of the Pension Fund was decided by the Pension Fund Governing Board in application of the objectives fixed by the Council. This mandate - referred to as a capital preservation mandate - consists of striving to meet the actuarial return objective of 3% annually above Geneva inflation with the lowest possible level of risk.
Risk management can be considered as a central element of the Fund’s capital preservation mandate.
The risk management policy of the Fund is defined in the Statement of Investment Principles and Investment Policy approved by the Governing Board in 2011. It is based on setting a risk measure, an annual risk limit and managing the asset allocation exposure compatible with the risk limit and with the return objective.
The risk measure of 1 Year 5% CVaR (Conditional Value at Risk) was approved by the Governing Board in 2012, based on the recommendation of the Investment Committee. The risk measure is an estimate of the potential average loss that has a 5% probability of occurring within a 1 year horizon.
The risk limit is approved on an annual basis, also by the Governing Board. The 2013 risk limit set at a value of -8% for the 1 Year 5% CVaR has been maintained for 2014.
The risk exposure of the Fund is monitored by the Investment Committee. The risk exposure is estimated and reported to the Investment Committee by the Fund’s Risk Consultant on a quarterly basis and compared to the risk limit set by the Governing Board.
The investment governance of the Fund was designed so as to ensure a most efficient use of available expertise and the optimal level of transparency to, and control by the relevant supervisory bodies.
In the CERN Pension Fund investment governance framework, see Figure 1, the Governing Board sets the strategic direction and constraints, including the definition of the annual risk limit. The Investment Committee defines and controls the asset management process. The Chief Executive Officer and the staff of the Management Unit are in charge of the implementation and in particular of maximizing the efficiency of investment management in terms of expected return per unit of risk. This investment governance is further strengthened by the implementation of comprehensive independent reporting of the Fund’s performance, both in terms of asset return and risk.
The overall compliance framework is complemented by an Internal Control System (ICS), which includes and annual audit of investment related processes by the Fund’s Internal Audit Service.
Figure 1: CERN Pension Fund Investment Governance Framework
CERN Pension Fund Performance versus Objectives in 2013
In 2013, the Fund reached and exceeded its investment mandate, see Table 1. The percentage return on assets of 7.76% exceeded the Fund’s return target by 4.62 percentage points. Figure 2 shows the quarterly evolution of cumulative return compared to the objective. The Fund maintained a prudent risk level throughout the year in compliance with the risk limit decided by the Governing Board, see Table 2.
Table 1: CERN Pension Fund Performance vs. Objectives as at December 31, 2013
Figure 2: Cumulative Return vs. Objective in 2013
Table 2: Quarterly Risk Compliance 2013
At 31 December 2013, the Fund’s net assets amounted to 4,044 MCHF. The asset allocation as at December 31, 2013 is shown in Table 3.
Table 3: Asset Allocation as at December 31, 2013
The fair value of the Fund’s holdings of bonds, equities and investment Funds is shown in Table 4.
|Table 4: Fair value of Bonds, Equities and Investment Funds as at December 31, 2013|
Quarterly Results in 2014
As of 30 June 2014, the Fund’s NAV was 4'111 MCHF, as reported by the Custodian. The quarterly evolution of the Fund’s risk and return is shown in Table 5 and Table 6. During Q2 2014 the Fund returned 1.64% while maintaining the risk level below the 2013 risk limit decided by the Governing Board. Quarterly evolution of the Net Asset Value (NAV) is shown in Figure 3.
Table 5: Quarterly Returns 2012-2014*
Table 6: Quarterly Risk Compliance - Rolling Four Quarters
|Figure 3: Net Asset Value since 1 January 2012|
CERN Pension Fund investments can be classified in two categories: direct investments or investments through external mandates.
Direct investments include investments in listed and unlisted securities (including fund securities), limited partnerships and derivative contracts, where the investment decision is made by the Pension Fund.
External mandates include investments in listed and unlisted securities (including fund securities), limited partnerships and derivative contracts, where investment decisions are delegated to an external provider pursuant to an investment management agreement.
The actual split of the Fund’s portfolio between these two categories is of 93.23% in direct investments and approximately 6.77% in external mandates, see Table 7 and Table 8.
|Table 7: Portfolio Composition as at 30 June 2014|
Table 8: List of External Mandates as at 30 June 2014
Real Estate Portfolio
The Fund’s real estate portfolio is composed of 19 properties located in 5 countries: Switzerland, France, The Netherlands, Germany and the United Kingdom. The composition of the portfolio as at 30 June 2014 is given in Table 9.
Table 9: Composition of the Real Estate Portfolio as at 30 June 2014