Decision-Making and Solvency-Based Dynamic Asset Allocation at the ABN AMRO Pension Fund

Abstract

Since 2007, the board of trustees of the ABN AMRO Pension Fund has applied an innovative approach to determine its strategic investment policy. The strategic asset allocation is selected implicitly by choosing the pension fund’s set of risk-reward characteristics without knowing the underlying investment policy. This process ensures an effective separation between the decision about risk-reward trade-offs on one hand and investment beliefs and means to achieve those trade-offs, such as the investment policy, on the other hand. This decision-making process repeatedly has led to the choice of dynamic asset allocation strategies in which the level of risk depends on the pension fund’s funded ratio. Traditional static asset allocations with similar expected returns would have led to a significantly lower funded ratio.

Keywords: ABN AMRO pension fund, dynamic asset allocation

JEL Classification: G10, G11, G23