Optimal robust and consistent active implementation of a pension fund's benchmark investment strategy

Tim van Hest () and Anja De Waegenaere
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Tim van Hest: Tilburg University

Journal of Asset Management, 2007, vol. 8, issue 3, No 4, 176-187

Abstract: Abstract The benchmark investment strategy of a pension fund typically consists of a number of benchmark categories, each of which is assigned a weight in the overall investment budget. In this paper we assume that the benchmark strategy is given, and determine a model for its optimal active implementation. Active implementation involves a number of investment managers each of whom are assigned a specific benchmark category. We present a mean–variance approach to determine, for each investment manager, the optimal budget as well as the fraction of that budget that can be used for deviations from the benchmark. The emphasis is on robustness of the optimal allocation with respect to parameter misestimation, and on consistency in terms of risk-return preferences between active implementation and benchmark investment strategy.

Keywords: asset liability management; pension funds; active investment decisions; robust optimisation (search for similar items in EconPapers)
Date: 2007
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DOI: 10.1057/palgrave.jam.2250072

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