A Governance Framework Designed for Dynamic Asset Allocation: The CERN Pension Fund Model

8 Pages Posted: 8 May 2013

Date Written: March 1, 2013

Abstract

There is a growing awareness among pension fund fiduciaries that the traditional, static approach to asset allocation may not always protect the fundamental interest of their institutions: preserving capital and ensuring adequate and steady rates of return over time. The CERN Pension Fund innovated by moving away from the traditional framework and by adopting a capital preservation approach based on dynamic risk-driven asset allocation. CERN’s implementation of the risk-driven approach gives full flexibility to the investment team in allocating assets, subject to maintaining the fund’s total risk under a pre-approved ceiling. Reconciling proper execution of fiduciary duties with the dynamic approach required a new governance framework, spelling out adequate investment principles, and incorporating independent daily risk-control as well as new metrics to measure performance.

Keywords: dynamic asset allocation, capital preservation approach, dynamic risk-driven asset allocation

JEL Classification: G00, G10, G11

Suggested Citation

Economou, Theodore and Haenni, Gregoire and Manola-Bonthond, Elena, A Governance Framework Designed for Dynamic Asset Allocation: The CERN Pension Fund Model (March 1, 2013). Journal of Investment Consulting, Vol. 14, No. 1, 32-37, 2013. Available at SSRN: https://ssrn.com/abstract=2235344

Theodore Economou (Contact Author)

CERN Pension Fund ( email )

Building 5, 5th floor, Offices 019, 021, 023
Geneva
Switzerland

Gregoire Haenni

CERN Pension Fund ( email )

Building 5, 5th floor, Offices 019, 021, 023
Geneva
Switzerland

Elena Manola-Bonthond

CERN Pension Fund ( email )

Building 5, 5th floor, Offices 019, 021, 023
Geneva
Switzerland

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