Investment Governance Framework
April 2022
Introduction ……………………………………………………………………………………………………………………3
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1.1 Purpose of the IGF …………………………………………………………………………………………………………..3
1.2 Legislation………………………………………………………………………………………………………………………3
1.3 Fund Structure ………………………………………………………………………………………………………………..3
Investment Teams …………………………………………………………………………………………………………..3
2.1 The Board and the Investment Committee…………………………………………………………………………4
2.2 Internal Investment Management Team ……………………………………………………………………………4
2.3 Internal Back Office …………………………………………………………………………………………………………4
2.4 External Investment Managers …………………………………………………………………………………………4
2.5 External Asset Consultant ………………………………………………………………………………………………..4
Fund objectives, investment objectives and portfolios ……………………………………………………….4
3.1 Setting the Fund’s Investment Strategy ……………………………………………………………………………..5
3.2 Investment objective for diversified options ………………………………………………………………………5
3.3 Investment Strategy for each option …………………………………………………………………………………5
3.4 Portfolio Construction ……………………………………………………………………………………………………..5
3.5 Dynamic and Tactical Asset Allocation……………………………………………………………………………….5
3.6 Risk Management……………………………………………………………………………………………………………5
3.7 Performance assessment …………………………………………………………………………………………………5
Manager Selection Process ………………………………………………………………………………………………6 Liquidity Management Plan ……………………………………………………………………………………………..6 Reporting and Monitoring………………………………………………………………………………………………..6 Appendix ………………………………………………………………………………………………………………………..7
1 Introduction
Within this investment governance framework (IGF), Pty Ltd is referred to collectively as the ‘Fund’ or “ ”.
The IGF contains reference to the following Fund policies: Liquidity Management, Derivatives, Taxation, Dynamic and Tactical Asset Allocation, Valuation and ESG.
1.1 Purpose of the IGF
The purpose of the IGF is to:
▪ Clarify the roles, responsibilities and objectives of the various professional teams that provide input into the Fund’s investment activities.
▪ Describe the key policies and frameworks that govern the Fund’s activities.
▪ Set out the investment objectives, allowable investment ranges, strategic asset allocations (SAA) and standard risk measures (SRM) for the Fund’s diversified investment options (refer to
Appendix).
1.2 Legislation
is a registrable superannuation entity (RSE). The Fund must comply with a collection of legislation: the Superannuation Industry Supervision Act 1993 (SIS Act), Superannuation Industry Supervision Regulations 1994 (SIS Regulations), APRA’s Prudential Standard on investment governance (SPS 530) and the Corporations Act 2001.
1.3 Fund Structure
The Fund maintains four member-choice investment options (Conservative, Balanced, Growth and High Growth). The Growth option is the Fund’s default MySuper product.
In addition, the Fund offers an account-based pension product for members in the retirement phase of their lives. A member in with an account-based pension can choose the underlying investment option.
2 Investment Teams
Investment Governance is a process that clarifies the roles, responsibilities and objectives of the various professional teams that provide input into the Fund’s investment activities. The fund consists of the following professional teams:
▪ The Board and Investment Committee. ▪ Internal Investment Management Team ▪ Internal Back Office
▪ External Investment Managers
▪ External Asset Consultant
Each team’s role, responsibilities and objectives in the investment management process is outlined below.
2.1 The Board and the Investment Committee
The Board is responsible for setting the investment objective and investment strategy for each Investment Option. The Investment Committee (IC) is a sub-committee of the board. The IC is responsible for reviewing and making recommendations up to the board for approval for the strategic and tactical/dynamic asset allocation for each Investment Option. The IC has delegation from the board for approving the appointment of external investment managers and for approving any direct investment of the fund. It is also responsible for overseeing the monitoring of the Funds’ investments and the performance of the Internal Investment Management Team.
2.2 Internal Investment Management Team
The Internal Investment Management Team reports to the Chief Investment Officer (CIO) and is responsible for producing recommendations to IC regarding the following:
Strategic Asset Allocation (Benchmark Asset Allocation and SAA ranges) for each investment option.
Tactical/dynamic asset allocation within the SAA ranges for each investment option.
Selection of external investment managers.
Other ad hoc requests from the Board / Committee.
Internal Back Office
The back-office team is responsible for all administration tasks, including execution and settlement of transactions for the Internal Investment Management Team.
2.4 External Investment Managers
The investment management of Fund assets is outsourced to specific investment managers, with skills in either individual or multiple asset sectors. The External Investment Managers are responsible for making and executing investment decisions based on their mandates. These investments are made either through pooled vehicles or through segregated accounts.
2.5 External Asset Consultant
The Board, Investment Committee and Internal Investment Management Team utilises the services of an external asset consultant, Deep Thinking Investor (DPI), to assist in analysis of the portfolios. The External Asset Consultant’s role is to provide independent advice to the Committee and the Board with respect to asset allocation, investment manager selection and direct investments. These Consultants assist the Internal Investment Management Team with investment manager selections and performing analysis work where needed and will periodically review the performance of the Internal Investment teams as an independent review. They are also a source of insights on superannuation industry trends.
3 Fund objectives, investment objectives and portfolios
Investment Governance adds value to the Fund’s investment activities and is an important aspect of good decision-making processes. The main focus of the Board is to generate returns to meet investment objectives, while managing sources of investment risk, and acting in the best interest of members.
3.1 Setting the Fund’s Investment Strategy
The overarching investment strategy for the Fund is to offer a range of investment options which meet the varying needs of members as they save for retirement as well as their needs during retirement. The Fund offers members choice (through choice options) and operates a MySuper default product for members who do not make a choice.
Each investment option includes an appropriate level of diversification. The Fund recognises the long- term nature of investment for retirement and therefore believes that all investments should be considered for their financial return over the long term, and because of that also through an Environmental, Social and Governance lens.
3.2 Investment objective for diversified options
The investment objective is expressed as the annualised growth in the Consumer Price Index over 10 years plus a margin (CPI+X%).
The Fund requires the probability of meeting an investment objective to be at least 50%.
3.3 Investment Strategy for each option
The investment strategy of each diversified option is constrained by the extent of growth assets and constraints on individual asset class exposures. The Fund’s asset allocation is required to fall within the allowable asset allocations ranges (see Appendix)
3.4 Portfolio Construction
Diversified portfolios are constructed using constrained mean-variance optimisation. This process includes a consideration of the probability meeting performance objectives and the uncertainty around forming return expectations.
3.5 Dynamic and Tactical Asset Allocation
Dynamic and tactical asset allocation may be employed to express shorter term view on asset classes or exploit market dislocations. This activity is governed by the Dynamic and Tactical Asset Allocation Policy.
3.6 Risk Management
The risk within the Fund’s diversified options is managed through the liquidity management policy, the Dynamic and Tactical Asset Allocation policy, and the Derivatives policy.
Stress tests (market and liquidity), factor analysis, and expected shortfall analysis are employed as part of the annual review of the Fund’s diversified options.
3.7 Performance assessment
At the end of each financial year the Fund undertakes performance attribution and peer group comparisons. This allows the Fund to determine the sources of performance (asset allocation, manager selection and implementation shortfall) and to determine the Fund’s competitiveness and value to members. The peer groups used are the those constructed by SuperRatings.
4 Manager Selection Process
The selection of active and passive investments managers and products will, as part of the due diligence process, consider:
▪ Team capabilities, qualifications, and backgrounds
▪ Operational capabilities, IT systems, dependencies and vulnerabilities
▪ Risk management practices and systems
▪ In the case of active managers, statistical measures of historical performance, including the
historical alpha, statistical confidence, active risk, and drawdowns against benchmarks
▪ Taxation and regulatory risk
▪ Reporting
▪ Liquidity.
Managers are monitored and reviewed regularly. Managers may be terminated without Investment Committee approval for a range of reasons. These include underperformance; failure to meet the requirements of the Investment Manager Agreement (IMA); changes in operational risk; reputational issues; and changes in personnel. All terminations will be reported at the next Committee meeting.
5 Liquidity Management Plan
The aim of liquidity management ensure member transaction can be completed in a timely manner in most market environments. The Fund has a management plan contained within the Liquidity Management policy.
6 Reporting and Monitoring
The Investment team provides the Investment Committee with reports of performance of investment options against investment objectives and peers monthly. In addition, reports are provided to the Committee on the market environment, peer performance, compliance monitoring and significant events, with a focus on risk, liquidity, diversification and the impact of any regulatory changes.
7 Appendix
The Tables in this appendix set out the investment objectives, allowable investment ranges, strategic asset allocations (SAA) and standard risk measures (SRM) for the Fund’s four diversified investment options.1
Table 1: Investment objectives and SR Categories for diversified investment options
Conservative
Investment Objective (10 years) CPI+1% p.a. SuperRatings Peer Group Capital Stable
CPI+2% p.a. Balanced
CPI+3% p.a. Growth
High Growth
CPI+4% p.a. High Growth
Table 2: Allowable asset allocation ranges for investment options (%)
Australian equities Developed equities
Australian Fixed Interest Cash
Total Growth Assets
Conservative
10 – 20 10 – 20
0-20 40-80
Balanced Growth 20-50 30-75 15-45 15-45
9-40 10-23 0-15 0-10
60 -76 77-90
High Growth
30-80 20-70
High Growth
Table 3: Strategic asset allocations for diversified investment options, 2022 (%)
Australian equities Developed equities
Australian Fixed Interest Cash
Total Growth Assets
Conservative Balanced
15 35 15 35
20 25 50 15
30 70 85 98
Expected frequency of negative annual returns: Approximately 5 times every 20 years for Growth.
1 SAA has a long-term (up to 10 years) focus whereas tactical asset allocation (TAA) has a shorter term (1 to 3 years) focus.
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