MAP designs and implements its investment strategies employing Aon as a General Investment Consultant and utilising Aon's global asset engine. This provides MAP with:
Our process follows a number of key steps and begins with setting the objectives for MAP.
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) to agree and set clear objectives. Our first step is to work through some important questions:
Then we translate these objectives into return and risk measures, both of which are linked to a defined time period.
MAP's strategy reflects some core investment beliefs such as:
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'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.
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:
Organisation & Staff
Terms & Conditions (Client Service/fees etc)
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 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:
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).