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PUBLICA’s Investment Beliefs

1. Mandate

We invest exclusively in the interest of our active members and pension recipients. While appropriately limiting risks, we aim to generate a return sufficient to protect active members and pension recipients against the economic consequences of old age, disability and death, and also ensure that the promised benefits can always be paid out in a timely manner.

2. Defining the strategic asset allocations

Strategic asset allocations
The most important decision we take is defining the strategic asset allocations, which prescribe the distribution of assets across the various asset classes, such as equities, government bonds, corporate bonds, commodities and real estate. This accounts for at least 90% of our investment performance. The strategic asset allocations are based on PUBLICA’s long-term investment policy and are derived from an asset and liability management (ALM) process that takes account of the liabilities and prescribed risk budget of the pension plans within PUBLICA.

Risk budget
We set the risk budget for each strategic asset allocation when conducting our review of PUBLICA’s long-term investment policy. This sub-process takes account of the pension plans’ financial and structural risk capacity, the benefit objectives and the risk tolerance of the risk-bearing entities. When defining the risk budget, we currently use the Conditional Value at Risk (average of the 5% worst scenarios) and the target return.

Investment horizon
Our liabilities are long-term, since the expected liquidity requirement in the event of a partial liquidation
is low. This enables us to exploit the benefits of a long-term horizon (for example tolerating short-term
fluctuations in value and capturing illiquidity premiums), especially where the open pension plans
are concerned. In the ALM process we employ a strategic horizon of 10 years. Since risk premiums
are cyclical, we review the key assumptions of the ALM process (in particular the risk/return assumptions
for each asset class and the development of the funded ratio) on a regular basis. If this reveals that
material assumptions have changed substantially since last ALM study, the entire review of the
strategic asset allocations is started afresh.

We capture a large number of different risk premiums. This diversification allows us to reduce the risk
for the portfolio as a whole.

Portfolio construction
A portfolio is more than the sum of its parts, because the various asset classes behave differently.
For that reason, we examine each asset class and portfolio component not just in isolation but also
in terms of its contribution to overall risk and return.

Investment decisions
We base our investment decisions on sound data and well-founded scientific principles. In the
ALM process we use realistic, well-founded risk/return assumptions for the individual asset classes.

3. Implementing the strategic asset allocations

Responsible investment
PUBLICA’s responsible investment approach is divided into two areas:

  • actively exercising shareholder rights: we regularly review investments on the basis of objective
    criteria and seek dialogue with critical companies (screening and engagement), and exercise
    voting rights.
  • ESG risk analysis (E = Environmental; S = Social; G = Governance): as part of extended risk
    management, we conduct a regular risk analysis according to ESG criteria to assess risks
    (including reputational risks) that are difficult to quantify and could result in tangible financial
    losses to the assets managed by PUBLICA.

We aim to construct a portfolio that is simple, functional and transparent. We do not make investments
in non-transparent products. This means we have a detailed overview of all the assets in the strategic
asset allocations at all times.

We carefully define a benchmark for each asset class that provides the most efficient representation
of the desired risk/return profile from the perspective of the strategic asset allocations.

Investment style
In largely efficient markets, very few asset managers are in a position to select individual securities
successfully and put together a portfolio that consistently outperforms the market without additional
risks and after deduction of all costs. It is difficult for PUBLICA to identify these managers and invest
the appropriate amounts in their products. For this reason, our internal and external asset managers
make investments in liquid asset classes in line with or close to an index. In the case of more illiquid
asset classes (private markets) we pursue a “buy and maintain” approach.

Selection of asset managers and form of implementation
The same stringent requirements apply to both internal and external asset managers. PUBLICA selects
the most capable partners for each asset class on the basis of a clearly structured process. Where
possible, a back-up solution is put in place for each asset class. This redundant approach means that
another asset manager can step in promptly if required.

Tactical asset allocation and disciplined rebalancing
We make tactical decisions, i.e. temporarily overweighting and underweighting relative to the strategic
asset allocation, with a view to generating added value (a higher net return or lower risk) over the
medium term.

4. Monitoring the strategic asset allocations

Risk management
We identify, measure, monitor and manage risks and returns for the assets of each strategic asset
allocation as a whole. Internal and external parties ensure that invested assets are managed in
accordance with the specifications and the risk budget for the strategic asset allocations is adhered
to. We minimise risks that are not compensated by a premium.

Management information strategy
We ensure that those responsible are provided with meaningful information relevant to the
performance of their management tasks.

5. Best governance

We separate advice, decision-making and controlling in order to avoid conflicts of interest wherever
possible. We apply the four-eyes principle. Clear and transparent management and decision-making
processes generate added value. The Board of Directors bears overall responsibility for asset
management. It issues the Investment Guidelines (PDF, 240 KB) and strategic asset allocations (PDF, 135 KB). Its detailed remit is set out in the Investment Guidelines.

Our investments are managed by experts who meet stringent professional requirements and
demonstrate respect, integrity and loyalty.

PUBLICA’s Investment Beliefs (PDF, 50 KB)

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