Analysis

ISSA Reserve Fund Monitor – New report released

Continuing strong performance of survey participants in 2016

The ISSA has released the Social Security Reserve Fund Monitor 2016 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 313 pension funds, sovereign wealth funds, and endowment funds and representing USD 11.8 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 2016 was 4.8% and the average was 5.7%. This compares to the global survey median of 7.6% and the average of 7.7%.
  • 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 2016 was 5.3% and the average was 6.2%. This compares to the global survey median of 7.5% and the average of 7.6%.
  • 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 2016 was -0.5% and the average was 1.3%. This compares to the global survey median of zero and an average of 0.1%.
  • The median total investment cost for participating ISSA member institution reserve funds was 21.6 basis points (bps). This compares to the global survey median of 49.1 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 3.2 trillion.
  • Despite ageing populations and financing constraints, over 90% of funds reported a positive cash flow position in 2016;
  • Even with increasing scrutiny and governance requirements, less than 20% of participating funds stated they had a Socially Responsible Investment (SRI) policy;
  • Asset allocation differed significantly from the CEM Benchmarking global survey – around 20% 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% 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 three-quarters of ISSA member institution reserve fund assets were managed internally (passive and active), this figure is around 25% for the global survey participants.

The launch of the next round of the ISSA Reserve Fund Monitor looking at 2017 will take place in May 2018. 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.


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