At ATP, we invest with a single goal: To maximise pensions for our members
Our investment policy is based on the following four main criteria:
- Avoid risks for which we cannot obtain compensation: Our pension liabilities are hedged to cover changes in interest rates. This is managed in an independent hedging portfolio.
- Efficient risk diversification: The return of the investment portfolio should be as stable and as independent of economic trends as possible. Therefore, we diversify risks as efficiently as possible by breaking our investments down into five risk classes.
- Hedging against very negative events: We supplement our risk diversification with hedging strategies to reduce the likelihood of disastrous losses.
- Appropriate risk level: We adjust our investment risk relative to the size of ATP’s reserves.
Three primary interdependent focus areas that work together are: Goals and Risk tolerance, Investments and Pensions.
An integrated view of Goals & risk tolerance, Investments and Pensions
As the figure indicates, the three areas are interdependent, which is an important relationship to take into account in decision making. For example, a decision to increase ATP’s exposure to equities will not immediately affect the size of pensions, but if this results in higher overall returns, the reserves will increase and pensions may ultimately increase correspondingly. Similarly, changes in ATP’s pension liabilities may influence our investment policy. For example, if life expectancy increases, the pension liabilities will increase and the reserves decrease, which will then reduce our capacity to take risks when we invest.
The challenge is to devise and implement strategies and policies that are consistent with our principal objectives, and to take into consideration the correlation between risk tolerance, assets and liabilities. Our in-house ALM (Asset Liability Management) model ensures that allocation to risky assets is managed dynamically as a function of the size of the reserves and of ATP’s risk tolerance.
