Asset Allocation, Funds Of Hedge Funds, And Due Diligence The case solution
Performance on total assets (=net investment income + price gains. /. Price losses) came to 9.8% for 2019 (benchmark 16.8%). This clear shortfall last year is attributable primarily to Swiss real estate (7.5% vs. benchmark 20.7%). Real estate funds (=benchmarks) gained considerable value in 2019 as a result of strong investor demand. The valuations of our own properties and our investments in lower-risk investment foundations were unable to keep the pace here. Private equity investments also fell short of the benchmark significantly (4.2% vs. benchmark 26.2%), as the booming equity markets fuelled the rise in the latter. The same was true of infrastructure and international real estate, where our unlisted investments couldn’t keep up with their listed counterparts (=benchmarks) (Exhibit 1).
With a result of 9.8%, the Schindler Pension Fund was slightly below the average when compared with other pension funds. The performance figures for pension fund clients that are calculated and published by Switzerland’s two major banks came to 11.1% (UBS) and 11.5% (CS) for 2019. The employer contribution in 2019 has been decreased, which is clearly shown in Exhibit 2. (Schindler pension funds, 2019)
Ans no. 3
In view of the performance achieved by the Pension Fund, and the cover ratio, the Board of Trustees has decided to pay interest on retirement assets at the rate of 2.5% for 2019. Since the actuarial interest rate at the beginning of 2019 was also 2.5%, the Board of Directors has decided not to adjust pensions in 2020. This move ensures that active insured and pensioners are treated equally with regard to the interest on their capital.
In 2019, the Board of Trustees had the investment strategy reviewed by an external provider, after which it decided to continue pursuing it unchanged. With a strategic equity allocation of 26.5% and a real estate allocation of 33%, the Pension Fund’s positioning is relatively defensive (Exhibit 3). It is expected that this strategy will generate an annual performance of approximately 2.4% in the medium term.
The pension fund’s assets, and their change in composition is illustrated in the Exhibit 4. (Schindler pension funds, 2019)
Basically, assets allocation is the process of dividing investment into various classes of assets. Yes, asset allocation is a clear chance of earning the return required by the fund.. As it is clearly seen from Exhibit 1 and Exhibit 2 that Shrinder has divided its assets into different classes like bonds, shares, foreign funds which will definitely help company to meet the return required.
Ans no. 4
Financial controlling
On a daily basis the financial controller checks that the asset managers are abiding by the set asset allocation bandwidths and the qualitative requirements for the individual investments. He produces a monthly report.
Management
The Pension Fund's Management is responsible for liquidity planning, and produces a monthly report featuring performance, benchmark comparisons, the cover ratio and major transactions for the Board of Trustees.
Asset managers
The responsibility of the asset managers is to manage the funds delegated to them, within certain set guidelines, in such a way that they generate a better result than the predetermined benchmark within a three-year period.
Global Custodian
The global custodian is responsible for holding securities in safekeeping, for calculating performance, and for monthly reporting.
Auditors
The auditors review on an annual basis whether or not the Pension Fund has complied with the law and the guidelines laid down in its Rules at all levels of the organization. They produce a report for the Board of Trustees.....................
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