Foreword xi
Preface xiii
Chapter 1 The Pendulum Swings Back in Asset Management 1
The Forces of History 1
The Rise of Modern Portfolio Theory 3
Support for Shares 4
The New Paradigm 6
The Rise of Indexing 9
Discontent with the Paradigm 10
The Need for Fiduciary Managers 12
Chapter 2 Pension Plans: The Principal Setting for Fiduciary Management 15
The Historical Idea of Pensions 15
A Patchwork of Pension Provisions 18
Organization and Regulation of the Pension System in several OECD Countries 23
Denmark 23
France 25
Germany 26
The Netherlands 27
Marking to Market 28
Sufficiency Test 29
Sweden 30
Switzerland 31
United Kingdom 31
The United States 32
Australia 33
Similarities and Differences 34
Commonalities on the Asset Side 36
Chapter 3 The Role of the Fiduciary Manager as Chief Advisor 39
The Asset-Liability Study 39
Thinking through Risk and Return 41
Portfolio Construction 42
Selecting and Overseeing Investment Managers 43
Measuring and Benchmarking 43
Education 44
The Trusted Counselor, the Fellow Fiduciary 46
Chapter 4 Shaping the Fundamental Investment Policies 47
Liability-Driven Investments 51
Choosing an Active Investment Policy 52
Integrating Active Policy in the Overall Portfolio 55
Completion Account as a Necessary Adjunct to Active Policy 58
The Fiduciary Platform to Integrate Active Policy in the Overall Investment Portfolio 59
A Special Case: Bridging the Duration Gap 67
What a Fiduciary Manager¢s Report Looks Like 68
Chapter 5 Asset-Liability Modeling and the Fiduciary Manager 73
The Role of the Fiduciary Manager 74
The Asset-Liability Model (ALM) 75
Policy Instruments Used in Asset-Liability Modeling 78
Calculations to Cope with Uncertainty 80
The Crucial Role of ALM 81
Asset-Liability Modeling in Practice 82
Prognosis of Future Reserves without Policy Changes 84
Future Financial Situation with Flexible Premium Levels under the Regime of a Fixed Compound Rate 85
Future Financial Situation with Flexible Premium Levels under the Regime of Compound Rates Equal to Market Interest Rates 88
Future Financial Situation with Changes in Investment Policy 100
Policy Changes 102
Where Does Fiduciary Management Fit In? 102
Chapter 6 Fiduciary Management In Practice¢"Portfolio Construction 105
Defining Appropriate Asset Classes 106
Hedge Funds: Weighing the ¢¢New¢¢ Alternative 106
Burrowing In: Defining Sub-Allocations 109
Thinking about Style 111
Apportioning the Fixed Income Portfolio 112
Measure for Measure 112
Formulating Mandates for Managers 114
Chapter 7 Horses For Courses¢"Selecting And Overseeing Investment Managers 115
Creating the Beauty Parade 116
Investment Performance 117
Investment Process and Philosophy 117
Investment People 118
Operational Risk 119
Managing the Beauty Parade 121
Managing the Transition 122
Overseeing the Managers 123
Chapter 8 Performance Measurement and Benchmarking 127
Why Has Benchmarking Grown More Important? 128
The Use of Different Types of Benchmarks 131
Liability-Driven Benchmarks 133
Strategic Benchmarks 134
Fixed Income 136
Equities 137
Real Estate 139
Detailed Benchmarks in the Context of Active Investment Policy 140
Active Overlay Management 143
Rebalancing 144
Measurement of Active Policy 145
Chapter 9 The Fiduciary Manager Experience in the Netherlands and Beyond 151
Changes in Investment Policy 152
Changes in the Role of a Fund¢s Investment Committee 153
Changes in the Breadth and Depth of Discussions with Asset Managers 153
Changes in the Communication Process 154
Changes in the Level and Structure of Costs 155
Changes in the Importance of the Custodian 156
Overseeing the Fiduciary 157
Future Developments of the Market for Fiduciary Services 159
Beyond the Netherlands 165
Fiduciary Management Plus 165
Chapter 10 Summing Up Fiduciary Management: What It Is and Is Not 167
Goals, Policy, and Responsibilities 167
Fiduciary Management Can Enhance Productivity 173
What Fiduciary Management Is Not: A Simplification 174
Comparisons with Other Investment Management Models 175
The Concept¢s Claims 176
Appendix: Suppliers of Fiduciary Services 181
Notes 259
Bibliography 265
Index 269
