Professional Documents
Culture Documents
Jos Berkemeijer AAG Johan de Witt Lecture, AG-AI June 19, 2012
Jos Berkemeijer AAG Johan de Witt Lecture, AG-AI June 19, 2012
9/21/2013
Opening: Overture I
9/21/2013
Salt
Salt has been important to humanity for life on this planet. The word "salary" comes from sal, or salt, which was part of the pay of Roman soldiers. African and European explorers traded an ounce of salt for an ounce of gold salt was literally worth its weight in gold. Salt is important to many biological processes, but too much salt can hurt you, but the same can be said of most things even oxygen and water.
Agenda
Economic Perspective Financial Institutions Increasing Risk Risk Perception & Manipulation Linear Thinking In Between Conclusion Gold as Asset Class Change to Gold New Solutions Conclusion
9/21/2013
9/21/2013
Key Questions 1. Is the actual asset mix is still 'in line' with the defined risk appetite? 2. Does the actual asset mix still guarantee the required diversity? 3. Can investing in gold contribute to a sustainable risk return profile and an improved diversity?
9/21/2013
L A A/L
Source: Towers Watson
Conclusions Global pension fund balance sheets worsened during 1998-2011, losing 25.4% in the A/L indicator A/L Indictor lost 4.3% in 2011 The growth in liabilities exceeds by far the growth in assets
Source: Rubbaniy
9/21/2013
Advice Commission Parameters Fixed Income : 4.5% Listed Stocks: 7.0% Other Stocks & real Estate: 7.5%
9/21/2013
1. Conclusion DNB Actual performance 2000-2010 is 0.2% better than own defined benchmark 2. Other Conclusions Compound average performance (4.2%) equals arithmetic average performance Average performance (4.2%) < 10Y Eurobonds performance Theres no pay out on risk!!! Source: DNB
9/21/2013
10
9/21/2013
11
9/21/2013
12
ESM may demand an unlimited amount of money from European countries ESM is not accountable for what happens to the money ESM has the power to reduce private customer savings There are no compliance or control measures defined ESM has no targets, cost-limitation and enjoys complete immunity.
13
9/21/2013
14
Discussion 1. A real pension objective puts the nominal pension at risk 2. How sure is your pension?
9/21/2013
15
9/21/2013
16
9/21/2013
17
Risk Perception & Manipulation Intermezzo: The Actuary as Risk Manager II Where are we today?
19
30 1 2
37 7 8
42 13 15
9/21/2013
20
Risk Perception & Manipulation Artificial Discussable Market & Liability Value
Market Value Manipulation
Discussion 1. Market Value is artificial and a pension fund killer 2. 5-10Y Average Market Value Control is more adequate 3. Liability Risk Premium?
9/21/2013
21
9/21/2013
22
STRONG REGULATION
9/21/2013
DYNAMIC REGULATION
9/21/2013
9/21/2013
25
9/21/2013
26
27
9/21/2013
28
9/21/2013
29
30
9/21/2013
31
In Between Conclusion Way out: explore new ways and change system
9/21/2013
32
All the above-ground gold in the world (start 2012): Weight: 165,000 metric tons (165 million KG) Volume: Fits in a 20m x 20m x 20m Cube Value: Roughly $9 trillion Yearly production: 2500 metric ton (2,5 million KG)
9/21/2013
33
9/21/2013
34
9/21/2013
35
Nominal gold price (yellow) CPI 1 (red line) is calibrated for gold price at the beginning of the period. CPI 2 (green line) is calibrated for gold price at present.
Bron: The Gold Report (2009) & WGC: Gold as an asset class (2011)
9/21/2013
36
37
Gold as Asset Class FEDs Gold Backing: The End of FIAT Money?
9/21/2013
38
Chart 1
Gold price increases substantially in crisis scenarios
Chart 2
Gold as an Euro inflation hedge
9/21/2013
39
The main reason why gold adds significant diversifying power is its low or negative correlation with most other assets in an optimized portfolio context. We use Conservative return premium assumptions consistent with available long-term data and the presumed role of gold as an inflation-hedge. The more conservative the assumptions the more likely any significant findings may be reliable for long-term investing.
9/21/2013
40
Gold is an exceptional commodity and behaves not like other commodities Gold is the only monetary metal. Silver follows at a distance
9/21/2013
41
9/21/2013
42
43
44
9/21/2013
45
Institutional investors, like pension funds, are forced to look for safe investments and cash collateral of high quality. Large clearinghouses mark Gold as AAA collateral.
Source: WGC:Gold as a source of collateral (May, 2011)
Gold as liquidity
Gold is the most liquid financial product during crises to cover derivative positions, and is 24h a day traded (Comex New York, LBMA in London, Switzerland, 24 hours electronically through Globex, PAGE in Hong Kong )
46
47
48
49
50
In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. Deficit spending is simply a scheme for the confiscation of wealth.
Gold stands in the way of this insidious process. It stands as a protector of property rights.
51
Gold as Asset Class Vision: Prof. Dr. Ruud Kleynen, April 2011
It looks like gold performed best over the analyzed period Only gold finally was able to meet required return levels based on indexing ambitions Traditional stock markets did not do such a good job Gold could be seen as a safe haven in periods of economic distress Long term expectations for gold look interesting Should the traditional construction of portfolios be reconsidered?
52
Gold as Asset Class Vision: Ir Dennis van Ek AAG, CFA , May 2012
Summary Article Investing in Gold (Kluwer) 1. Gold is an asset class, no sub-asset class or subset of commodities 2. Gold offers purchasing power protection (scarcity, value quality, worldwide) 3. Gold is the basis of our monetary system 4. Central banks keep gold, no commodities 5. Optimal gold allocation in a portfolio: 5-10% 6. In times of crisis: allocation >10% 7. Long term better 'performance with gold in a portfolio: + 0.15% (equal risk)
DNB Annual Report 2010 In times of financial crisis, DNBs physical stock of gold serves as an ultimate reserve asset and as an anchor of trust. Gold is also held for diversification reasons.
9/21/2013
53
9/21/2013
54
9/21/2013
55
9/21/2013
56
Is it an idea to invest in gold? The investment committee could suggest that, but in practice this has not happened yet.
Nico van Wieringen, Controller Participations at KLM, in conversation with the Chairman of the Participants Council: Frans Reder.
Source:Focus
9/21/2013
57
58
9/21/2013
59
9/21/2013
60
61
62
IC: Here were back with more than 15,000 economic scenarios! PB: Impressing! Whats in it for Return and Volatility? IC: Its all in there, a mix of historical returns, asset mixes, horizons, crises, whatever you can think of. All designed by our experts! PB: Wow!! Looks great But whats that blue line over there? IC: Thats one of the more unlucky crisis scenarios PB: We dont like that one, Its outside our Risk Appetite IC: O.K., well hedge that scenario away.. Further we can minimize downside risks with derivatives. PB: And whats the strategic asset mix? IC: Its all dynamic and risk based, you dont have to care about your mix, our strategic scenario-generator takes care of that. It operates like an autopilot on your Strategic Asset Mix. PB: O.K. Thanks a lot. How to set up an investment mandate on this? IC: Dont worry, well define a dynamic investment mandate for your asset manager. PB: And what about reporting? IC: No problem, well take part in your Investment Advisory Committee (IAC) and pre-comment on every AM-report. PB: We all agree on all your proposals. Thanks for helping us OUT!!
9/21/2013
Conclusions Pension board Training Economic Skills Define your own Strategy and Risk Appetite
63
64
65
Discussion Should we, actuaries, become more active on the asset side of the balance sheet
9/21/2013
66
9/21/2013
67
68
Jos Berkemeijer : Start-Up Director at GSCG Market Intelligence T: +31 646 12 06 60 E: jos.berkemeijer@gmail.com
Martijn van Eck: Program Manager a.i. at GSCG Market Intelligence T: +31 652 56 87 75 E: vaneck@gscg.nl
9/21/2013
69
Specific documents
1. 2. 3. 4. 5. 6. 7. WCC: Gold: Hedging against tail risk (2010, October) WGC: Gold as a source of collateral (2011, May) WGC: Gold as a Strategic Asset (2006) Safehaven: Going Back to a Gold Standard? (2010) WGC: Gold: alternative investment, foundation asset (2011) WGC: Gold as an asset class (2011, January) WGC: Liquidity in the global gold market (2010)
Internet publications
1. 2. 3. 4. 5.
9/21/2013
Striking Portfolio Balance with Gold Stocks (2011, December) Adding Gold To An Equity Portfolio (2011, October) The role of gold in your investment portfolio (2009) Gold, Silver and Pension Funds Portfolio Diversification Myths (2011, July) USfunds (2011)
GSCG Market Intelligence All Rights Reserved
70
Thomas M. Idzorek, Portfolio Diversification with Gold, Silver and Platinum Further, Hillier et al, Do Precious Metals Shine: An Investment Perspective Jedrzej P. Bialkowski, Martin T. Bohly, Patrick M. Stephan and Tomasz P. Wisniewski, Is There a Speculative Bubble in the Price of Gold? Dirk G. Baur and Brian M. Lucey, Is Gold a Hedge or a Safe Haven? An Analysis of Stocks, Bonds and Gold Dirk G. Baur and Thomas K. McDermott, Is Gold a Safe Haven? International Evidence James Ross McCown and John R. Zimmerman, Is Gold a Zero-Beta Asset? Analysis of the Investment Potential of Precious Metals Massimiliano Marzo and Paolo Zagaglia, Gold and the U.S. Dollar: Tales from the Turmoil World Gold Council, Gold as a Source of Collateral World Gold Council, "Gold: Hedging against tail risk"
9/21/2013
71