CERN Pension Fund Investment Report – 3rd quarter 2017
The aim of the CERN Pension Fund’s (the Fund) “investment return objective” is to meet or exceed the actuarial best estimate discount rate adjusted for Geneva inflation over the long term. Best estimate assumptions are used in the Fund’s actuarial reviews.
The achievability of the investment return objective is reviewed in the context of a long-term asset study conducted on a tri-annual basis, or more frequently if deemed necessary.
The Fund’s performance against its investment return objective is measured over a multi-year time horizon, typically five years.
The risk management policy of the Fund is defined in the yearly Statement of Investment Principles and Investment Policy (SIP) approved by the Pension Fund Governing Board. 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% CVaR1 was approved by the Pension Fund Governing Board in 2012, based on the recommendation of the Pension Fund 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 or more frequently if deemed necessary, also by the Pension Fund Governing Board. The 2016 risk limit set at a value of -8% for the 1 Year 5% CVaR has been maintained for 2017.
The risk exposure of the Fund is calculated and reported by an independent risk consultant on a monthly basis in order to allow compliance with the risk limit of the Fund to be monitored.
1 Conditional Value at Risk: is a risk assessment technique often used to reduce the probability that a portfolio will
incur large losses. This is performed by assessing the likelihood (at a specific confidence level) that a specific loss will exceed the value at risk.
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 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 an annual audit of investment related processes by the Fund’s Internal Audit Service.
| Figure 1 – CERN Pension Fund Investment Governance Framework
As at 30 September 2017, the percentage return on assets of the Fund was 3.71%. Figure 2 shows the quarterly evolution of cumulative return compared to the objective. The Fund maintains a prudent risk level in compliance with the risk limit decided by the Governing Board, see Table 2.
|Table 1 – CERN Pension Fund Performance vs. Objectives as at 30 September 2017
|Figure 2 – Cumulative Return vs. Objective|
|Table 2 – Quarterly Risk Compliance – Rolling Four Quarters
At 30 September 2017, the Fund’s net assets amounted to CHF 4’155 billion, as reported by the Custodian. The asset allocation is shown in Table 3.
|Table 3: Asset Allocation as at 30 September 2017
Quarterly evolution of the returns and of the Net Asset Value (NAV) is shown in Table 4 and Figure 3.
|Table 4: Quarterly Returns 2012-2017
|Figure 3 – Net Asset Value since 1 January 2012|