CERN Pension Fund Investment Report (as of 2nd quarter 2015)
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 2014 risk limit set at a value of -8% for the 1 Year 5% CVaR has been maintained for 2015.
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 2015, the percentage return on assets of the Fund was 1.96%. 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 June 30, 2015|
|Figure 2: Cumulative Return vs. Objective in 2015|
|Table 2: Quarterly Risk Compliance – Rolling Four Quarters
At 30 June 2015, the Fund’s net assets amounted to 4’114 MCHF, as reported by the Custodian. The asset allocation is shown in Table 3.
|Table 3: Asset Allocation as at June 30, 2015|
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 2012-2015
|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 92.47% in direct investments and 7.53% approximately in external mandates; see Table 5 and Table 6.
|Table 5: Portfolio Composition as at 30 June 2015|
|Table 6: List of External Mandates as at 30 June 2015|