Investment

MAP designs and implements its investment strategies employing Aon Hewitt as a General Investment Consultant and utilising Aon Hewitt’s global asset engine. This provides MAP with:

  • Global scale and leverage:
    Aon Hewitt has over €4.2 trillion assets under advice globally and can thus negotiate competitive fund manager charges
  • Advanced monitoring and fund manager selection:
    Aon Hewitt monitors over 4,000 fund managers and over 15,000 investment strategies regularly and selects the best fund managers for particular asset classes
  • Optimal blended strategies:
    Aon Hewitt provides invaluable insight in changes and forecasts for market conditions and fund manager performance to assist with the continuous rebalancing of the strategies allowing for prevailing market conditions

Investment Process

Our process follows a number of key steps and begins with setting the objectives for MAP.

Clear objectives

Developing clear objectives

The ultimate purpose of MAP is to provide the Better Member Outcomes i.e. improved benefits to its members. To achieve that goal, the Administration Committee works closely with the Fund's Consultant (Aon Hewitt) to agree and set clear objectives. Our first step is to work through some important questions:

  • Where do we want to get to (in terms of investment returns), and by when?
  • What risks the Administration Committee is willing to take along the way?
  • What will the Administration Committee do when things do not go to plan (either for better or worse)?

Then we translate these objectives into return and risk measures, both of which are linked to a defined time period.

Investment beliefs

Investment beliefs

MAP's strategy reflects some core investment beliefs such as:

  • The simplicity or complexity of the overall strategy
  • The extent to which active management should be embraced within each of the major asset classes
  • Within a de-risking journey plan, should triggers be automatic or manual? How much discretion should the Administration Committee keep?

Strategic Allocation

Strategic Asset Allocation

Rigorous Asset modelling is a useful tool to help work out which Strategic Asset Allocation (SAA) will best meet the objectives. Aon Hewitt's market-leading capabilities cover an extensive range of modelling and scenario analysis.

To examine and develop the investment strategy, thousands of portfolios with different combinations of approved asset classes were plotted using a set of statistical tools developed by the Consultant. Optimal portfolios lie on the efficient frontier. The required constraints set by the Administration Committee were then applied to eliminate portfolios that fall outside these constraints. From the remaining available portfolios the Administrative Committee identified the portfolios that maximise the expected rate of return subject to the risk objectives set.

Implementation

Implementation

The Administration Committee acts prudently in implementing the Fund’s investment strategies as these are chosen by the members in order to diversify timing risks and avoid dramatic moves in the Fund’s asset composition.

(i) Asset Class Strategy (ACS)

The first step of the implementation process is the formulation of an ACS for each asset class which has been included in the long term SAA.

ACS is the approach taken to investing within a given broad asset class. Its main purpose is to make the risk-return trade-off as efficient as possible by refining and structuring the investment choices at a deeper level. The development of a well thought-out ACS is therefore essential because it enables the Committee to make informed and more focused decisions on how to invest within each broad asset class. The resulting ACS forms the basis for engagement with the external managers to manage assets.

(ii) Process for selecting fund managers

The Committee has adopted a process for selecting fund managers developed by the Consultant.

The approach aims to identify excellent fund managers by focusing on in-depth quality research. Quantitative and qualitative research techniques are used comprehensively within the research process. The main uses of both methods are as follows:

A qualitative analysis of the investment manager’s business, focusing on criteria such as organisation and staffing, integrity of the investment process etc.

A quantitative analysis of how investment returns have been generated, given a certain level of risk within the investment process. By performing an analysis at the stock level we are able to highlight the underlying reasons for performance as well as providing a check that the manager is acting in accordance with their stated intentions.

It is important to dig under the skin of managers' and analyse what they are actually doing rather than just what they say they are doing. The following seven main categories are evaluated:

Business

Organisation & Staff

Investment Process

Risk Management

Performance Analysis

Terms & Conditions (Client Service/fees etc)

Operations

The Consultant concludes a full due diligence on a wide range of managers/strategies and presents the results to the Committee in a Search Report.

The shortlisted managers brought forward for final consideration are invited to present their strategy to the Committee before the final decision is made on which manager to appoint.

Ongoing Monitoring

Ongoing Strategic Monitoring

The Committee has the responsibility to continuous monitor the investment arrangements of the Fund on a regular basis. The Committee understands and recognises the risks that the Fund is exposed to when investing. Monitoring of the investments is an important risk management toll, specifically in respect of the following:

  • Governance risk - which relates to the processes and governance of the Fund
  • Strategic risk - which relates to the way in which the Fund supports the organization's objectives
  • Financial risk - which relates to the ability of Fund to manage their liquidity needs

The purpose of monitoring is to collect, assess and present investment performance information in relation to the Fund, to enable the Committee to manage related risks. The Committee has established a formal cycle of investment performance review whereby on a quarterly basis receives and reviews reports on investment performance and the implementation of the investment programme and takes necessary action where concerns have arisen.

Frequency of Strategic Investment Reviews

The Committee undertakes, as a central part of their fiduciary duty to control risk, to review the investment objective and investment strategy every three years or earlier if necessary e.g. in case there is a significant change in the Fund’s characteristics (i.e. due to restructuring etc).