Fiduciary Management: Blueprint for Pension Fund Excellence Book

Foreword     xi
Preface     xiii
The Pendulum Swings Back in Asset Management     1
The Forces of History     1
The Rise of Modern Portfolio Theory     3
Support for Shares     4
The New Paradigm     6
The Rise of Indexing     9
Discontent with the Paradigm     10
The Need for Fiduciary Managers     12
Pension Plans: The Principal Setting for Fiduciary Management     15
The Historical Idea of Pensions     15
A Patchwork of Pension Provisions     18
Organization and Regulation of the Pension System in several OECD Countries     23
Denmark     23
France     25
Germany     26
The Netherlands     27
Marking to Market     28
Sufficiency Test     29
Sweden     30
Switzerland     31
United Kingdom     31
The United States     32
Australia     33
Similarities and Differences     34
Commonalities on the Asset Side     36
The Role of the Fiduciary Manager as Chief Advisor     39
The Asset-Liability Study     39
Thinking through Risk and Return     41
Portfolio Construction     42
Selecting and Overseeing Investment Managers     43
Measuring and Benchmarking     43
Education     44
The Trusted Counselor, the Fellow Fiduciary     46
Shaping the Fundamental Investment Policies     47
Liability-Driven Investments     51
Choosing an Active Investment Policy     52
Integrating Active Policy in the Overall Portfolio     55
Completion Account as a Necessary Adjunct to Active Policy     58
The Fiduciary Platform to Integrate Active Policy in the Overall Investment Portfolio     59
A Special Case: Bridging the Duration Gap     67
What a Fiduciary Manager's Report Looks Like     68
Asset-Liability Modeling and the Fiduciary Manager     73
The Role of the Fiduciary Manager     74
The Asset-Liability Model (ALM)     75
Policy Instruments Used in Asset-Liability Modeling     78
Calculations to Cope with Uncertainty     80
The Crucial Role of ALM     81
Asset-Liability Modeling in Practice     82
Prognosis of Future Reserves without Policy Changes     84
Future Financial Situation with Flexible Premium Levels under the Regime of a Fixed Compound Rate     85
Future Financial Situation with Flexible Premium Levels under the Regime of Compound Rates Equal to Market Interest Rates     88
Future Financial Situation with Changes in Investment Policy     100
Policy Changes     102
Where Does Fiduciary Management Fit In?     102
Fiduciary Management In Practice-Portfolio Construction     105
Defining Appropriate Asset Classes     106
Hedge Funds: Weighing the "New" Alternative     106
Burrowing In: Defining Sub-Allocations     109
Thinking about Style     111
Apportioning the Fixed Income Portfolio     112
Measure for Measure     112
Formulating Mandates for Managers     114
Horses For Courses-Selecting And Overseeing Investment Managers     115
Creating the Beauty Parade     116
Investment Performance     117
Investment Process and Philosophy     117
Investment People     118
Operational Risk     119
Managing the Beauty Parade     121
Managing the Transition     122
Overseeing the Managers     123
Performance Measurement and Benchmarking     127
Why Has Benchmarking Grown More Important?     128
The Use of Different Types of Benchmarks     131
Liability-Driven Benchmarks     133
Strategic Benchmarks     134
Fixed Income     136
Equities     137
Real Estate     139
Detailed Benchmarks in the Context of Active Investment Policy     140
Active Overlay Management     143
Rebalancing     144
Measurement of Active Policy     145
The Fiduciary Manager Expedience in the Netherlands and Beyond     151
Changes in Investment Policy     152
Changes in the Role of a Fund's Investment Committee     153
Changes in the Breadth and Depth of Discussions with Asset Managers     153
Changes in the Communication Process     154
Changes in the Level and Structure of Costs     155
Changes in the Importance of the Custodian     156
Overseeing the Fiduciary     157
Future Developments of the Market for Fiduciary Services     159
Beyond the Netherlands     165
Fiduciary Management Plus     165
Summing Up Fiduciary Management: What It Is and Is Not     167
Goals, Policy, and Responsibilities     167
Fiduciary Management Can Enhance Productivity     173
What Fiduciary Management Is Not: A Simplification     174
Comparisons whh Other Investment Management Models     175
The Concept's Claims     176
Suppliers of Fiduciary Services     181
Notes     259
Bibliography     265
Index     268