Analysis

ISSA Reserve Fund Monitor – New report released

Strong performance of survey participants in 2015

The ISSA has released the Social Security Reserve Fund Monitor 2015 report, produced in collaboration with CEM Benchmarking. As for previous editions, the report covers the performance of reserve funds from all four ISSA regions. Strengthening the acquired knowledge base developed from the former surveys, the participating ISSA member institution reserve funds supplied information on their returns, asset allocation, implementation style, costs and other parameters.

Offering a practical tool to ISSA member institutions, so they can compare their investment management approach with the CEM Benchmarking global survey participants – consisting of no less than 317 pension funds, sovereign wealth funds, and endowment funds and representing USD 11.1 trillion in assets – the participant ISSA member institution reserve funds are offered important insights into the performance, asset allocation and other management practices of their peers.

The report offers four key global findings on investment performance:

  • The median net total fund return for participating ISSA member institution reserve funds in 2015 was 4.0 per cent and the average was 4.9 per cent. This compares to the global survey median of 1.0 per cent and the average of 2.0 per cent.
  • Policy return is the return a fund could have earned passively by indexing its investments according to the fund’s policy mix (or target asset allocation). The median policy return for participating ISSA member institution reserve funds for 2015 was 3.3 per cent and the average was 3.6 per cent. This compares to the global survey median of 0.7 per cent and the average of 1.6 per cent.
  • Net value added shows how each fund has performed on an overall basis relative to benchmark alternatives. The median net value added for participating ISSA member institution reserve funds for 2015 was 0.0 per cent and the average was 1.3 per cent. This compares to the global survey median of 0.3 per cent.
  • The median total investment cost for participating ISSA member institution reserve funds was 14.3 basis points (bps). This compares to the global survey median of 47.0 bps.

Specifically concerning the observed performance of ISSA member institution reserve funds covered by the report, there a number of important additional findings:

  • Combined, the participating ISSA reserve funds had aggregate assets of USD 3.1 trillion.
  • Despite ageing populations and financing constraints, over 80 per cent of funds reported a positive cash flow position in 2015;
  • Even with increasing scrutiny and governance requirements, only 30 per cent of participating funds stated they had a Socially Responsible Investment (SRI) policy;
  • Asset allocation differed significantly from the CEM Benchmarking global survey – around 20 per cent of ISSA participant funds’ assets are invested in equities, two-thirds in fixed income and cash, and the rest in a mixture of alternatives and real estate. This compares to 40 per cent of assets in equities and the same proportion in fixed income and cash for the CEM Benchmarking global survey participants;
  • Implementation styles also show another key difference – while two-thirds of ISSA member institution reserve funds were managed internally (passive and active), this figure is less than 20 per cent for the global survey participants.

The launch of the next round of the ISSA Reserve Fund Monitor looking at 2016 will take place in May 2017. As for this year, each participating ISSA member institution reserve fund will receive a tailored report comparing their performance and investment management with the CEM Benchmarking global survey.