A Governance Framework Designed for Dynamic Asset Allocation: The CERN Pension Fund Model
8 Pages Posted: 8 May 2013
Date Written: March 1, 2013
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: Suggested Citation