CERN Pension Fund Investment Report (as at 3rd quarter 2016)
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 2015 risk limit set at a value of -8% for the 1 Year 5% CVaR has been maintained for 2016.
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
As at 30 June 2016, the percentage return on assets of the Fund was -1.00%. 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 2016|
|Figure 2 – Cumulative Return vs. Objective|
|Table 2 – Quarterly Risk Compliance – Rolling Four Quarters
At 30 September 2016, the Fund’s net assets amounted to CHF 4’070 billion, as reported by the Custodian. The asset allocation is shown in Table 3.
|Table 3 – Asset Allocation as at 30 September 2016|
Quarterly evolution of the returns and of the Net Asset Value (NAV) is shown in Table 4 and Figure 3, respectively.
|Table 4 – Quarterly Returns 2012-2016
|Figure 3 – Net Asset Value since 1 January 2012|
The CERN Pension 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 September 2016 is given in Table 6.
|Table 6 – Composition of the Real Estate Portfolio as at 30 September 2016|