Allocating Risk Capital: The Case of New Zealand Superannuation Fund

Abstract

This article describes how New Zealand Superannuation Fund (NZSF) allocates risk capital through its strategic tilting program. The process is based on the belief that a disciplined approach to risk allocation is a cornerstone of successfully implementing the Fund’s investment strategies and achieving its goals. The three key elements of the risk allocation approach are supportive investment beliefs, strong governance, and the disciplined use of NZSF’s active risk tool (ART). The article concludes with a summary of our experience with the approach to date. Other investors who engage in, or are considering engaging in, dynamic asset allocation may benefit from such an approach.

Keywords: Asset Allocation, Dynamic Asset Allocation, Pension Fund, Portfolio Design, Risk Capital Allocation, Tactical Asset Allocation