OECD/INPRS/KOREA CONFERENCE ON PRIVATE PENSIONS IN ASIA. October 24-25, Seoul, Korea. Session 3 Pension Fund Investment

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1 OECD/INPRS/KOREA CONFERENCE ON PRIVATE PENSIONS IN ASIA October 24-25, Seoul, Korea Session 3 Pension Fund Investment Greg Brunner General Manager, Policy Development

2 7KH,GHDO)UDPHZRUN Provides for the Generation of retirement income Sound protection of retirement income Allows for Diversity Innovation and Market change And is Simple and Inexpensive to comply with 2

3 7KUHHEURDGSULQFLSOHV The single responsible entity principle Establishing the trustee as solely responsible and directly accountable for the prudent management of members benefits The prudent person principle Providing that the trustee must act in the manner of a prudent person, placing emphasis on process The disclosure principle Providing a strong disclosure regime, enabling members to make informed decisions 3

4 7UXVWHHFRYHQDQWV (a) to act honestly in all matters concerning the entity (b) to exercise, in relation to all matters affecting the entity, the same degree of care, skill and diligence as an ordinary prudent person would exercise in dealing with property of another for whom the person felt morally bound to provide (c) to ensure that the trustee s duties and powers are performed and exercised in the best interests of the beneficiaries 4

5 ,QYHVWPHQW&RYHQDQW (f) to formulate and give effect to an investment strategy that has regard to the whole of the circumstances of the entity including, but not limited to, the following (i) the risk involved in making, holding and realising, and the likely return from, the entity s investments having regard to its objectives and its expected cash flow requirements (ii) the composition of the entity s investments as a whole including the extent to which the investments are diverse or involve the entity in being exposed to risks from inadequate diversification (iii) the liquidity of the entity s investments having regard to its expected cash flow requirements (iv) the ability of the entity to discharge its existing and prospective liabilities 5

6 ,QYHVWPHQW5HVWULFWLRQV Restrictions Sole purpose In-house assets Acquisition of assets from related parties Arm s length basis Prohibitions Borrowing Lending to members Charges over fund assets (except certain derivative products) 6

7 ,QYHVWPHQW2EMHFWLYHV Outline of Desired investment outcomes Overall risk philosophy Non-statutory constraints such as ethical or environmental 7

8 0LQLPXPFRQVLGHUDWLRQV Membership profile Benefit structure Members age distribution Members expectations Membership compulsory or voluntary Defined benefit Accumulation Hybrid Fund circumstances Market considerations Taxation position 8

9 ,QYHVWPHQW6WUDWHJ\ Minimum considerations Likely risk and return Diversification Liquidity and cash flow needs Outsourcing arrangements 9

10 0RQLWRULQJ Fund circumstances Changes to Member profile Market Legislative environment Consistent with Fund circumstances Membership profile Benefit structure Investment objectives Investment strategies MONITORING MUST BE REGULAR and DOCUMENTED Consistent with Objectives Desired risk and return Diversification Liquidity and cash flow needs Investments direct indirect outsourced Consistent with Strategies Performance benchmarks Legislative and contractual requirements Supporting systems Adequately Identify change Identify risks 10

11 7LQNHULQJ Defined benefit regulatory environment Frequency of monitoring funding levels (currently 3 years) Triggers for revaluation Tighter assumptions Member investment choice Parameters Member education Default funds Additional codification of prudent person rule Tighter diversification requirements in default or no choice case 11