Enforcing the prudent person principle in investment management
The Guernsey Social Security Department administers an insurance buffer fund of Pounds Sterling (GBP)722 million (US-dollar (USD)1,161 million).
The Department has, historically, had very high allocations in listed equities. As the global economic crisis took hold, the fund suffered an 18 per cent fall in value in 2008. This was followed by a 22 per cent recovery in 2009, fully restoring the fund to its pre-crisis valuation.
The experience caused the Guernsey Social Security Department, with the assistance of newly appointed investment advisers, to reconfigure its strategic asset allocations in order to reduce this level of volatility. The main objective is to seek equity-like returns with lower than equity risk.
The Department has re-positioned the investment portfolio, shifting the emphasis from relative return towards absolute return. Risk of a negative overall return still remains through the return-seeking equity exposure, but this will have a reduced allocation which will not exceed 45 per cent of the portfolio. The value at risk (VAR) has been halved, from 12 to 6 per cent.
The 2010 return on the fund was 12.43 per cent.
2Guernsey GSSD 2011-1.pdf 75.45 kB