Performance Analysis Of Swiss Pension Fund Benchmark Indices
The pension fund benchmarks shown below are contiguous indices based on successive benchmark index families published by Banque Pictet & Cie to reflect major changes in pension fund investment rules. The contiguous indices (marked with the letter ‘C’ ) permit a seamless analysis, back to the end of 1999.
Regardless of the exact benchmark family used, the performance analysis of them serves two main purposes:
- Firstly, such benchmarks give a fair, if simplified description of the investment environment from which pension funds need to find an optimum blend of risk and reward. An analysis of this environment gives insight into the specific challenges pension funds need to face, which may be comparatively easy during one cycle, but exceedingly difficult during another.
- Secondly, and only in view of the known and extraordinarily high correlation between actual pension fund performance data and such benchmark indices, the monitoring of relevant data with monthly frequency gives ‘live’ insights into the dynamics impacting the asset side of pension fund’s balance sheets. Monthly data, available with little or no delay and put into long-term context, generates an altogether different dimension of understanding, not possible with the annual data available from pension funds themselves, and after months of delay.
Exhibit-1 summarises the most recent 18 months in numerical and graphical form. While the graph plots on-balance rates of change for all three benchmarks, the table gives more detailed information. This includes the distance between latest value and interim highs and lows, frequencies of positive and negative months, central values, and standard deviation.
Exhibit-2 shows annual performance for the latest six completed calendar years, together with current year-to-date performance.
The table in Exhibit-3 gives actual index values for selected dates together with corresponding annualised returns: since 31.12.1999, 120, 60, 36, and 12 months ago. Year-to-date performance and the change over last month is shown, as is the current drawdown below all time high.
Exhibit-4 is a simple, mildly smoothed plot of actual index values since inception.
Exhibit-05 contains statistics related to return and risk from inception to date. A similar table referring to the latest 60 months only can be found further down, in Exhibit-11.
Exhibits-06 gives details of the distribution of monthly rates of change from inception to date. It shows the outer values of the range together with values at selected points along the distribution. The standard deviation is given, together with ratios describing how the distribution of values departs from ‚normal’ horizontally and vertically. Skew is calculated according to Fisher-Pearson, kurtosis according to Cochran. In a normal distribution, both these indicators would have a value of ‚0’. An identical table referring to the latest 60 months only can be found further down, in Exhibit-12.
Exhibit-07 consists of three individual graphs, all plotting trailing values normalised across 36 months and showing a history of 120 months. Graph a) shows return, b.) observed risk, and c) risk-adjusted return.
Exhibit-08 gives the relative value of LPP-C60 (the higher risk-tier benchmark) to LPP-C25 (representing the lower risk tier).
Normalisation across three years is also the basis for Exhibit-09. Two scatters display the return (vertical axis) and observed risk (horizontal axis) with a dashed line representing equilibrium between the two. The plot to the right gives most recent data, the one on the left data of 18 months previous. Both plots use identical scales to emphasise the shift.
Switching to a time frame of 60 months, Exhibit-10 shows simple index values, rebased to a value of 100 at the starting point of the graph.
The table in Exhibit-11 is identical in structure as the one in Exhibit-05 earlier, except that the data relate to the most recent 60 months. Please note that interim extremes may, or may not, be identical those for the full history.
Details of the distribution of monthly returns given in Exhibit-12 are identical to those of Exhibit-06 earlier, except that they refer to the most recent 60 months.
The graphs of Exhibit-13, one for each benchmark index, display the actual distribution of monthly returns together with a normalised distribution with identical standard deviation around the same. Here, the history is restricted to the most recent 36 months. Interval size hs been set to ½ the standard deviation. Extreme values may not be visible in the plot.
Raw data for the calculation of contiguous benchmark indices was sourced from: