Fiduciary Management offers an in-depth explanation of every facet of this fast-growing approach to organizing the management of an institutional investment portfolio. Expert author Anton van Nunen begins by outlining the historic shift that has brought this strategy to the attention of the investment community and quickly moves on to illustrate fiduciary management in practice; giving advice in terms of asset-liability modeling and financial markets, constructing portfolios, selecting and overseeing investment managers, benchmarking and performance measurement, and reporting.

Table of Contents:
Foreword xi Preface xiii Chapter 1 The Pendulum Swings Back in Asset Management 1 The Forces of History 1 The Rise of Modern Portfolio Theory 3 Support for Shares 4 The New Paradigm 6 The Rise of Indexing 9 Discontent with the Paradigm 10 The Need for Fiduciary Managers 12 Chapter 2 Pension Plans: The Principal Setting for Fiduciary Management 15 The Historical Idea of Pensions 15 A Patchwork of Pension Provisions 18 Organization and Regulation of the Pension System in several OECD Countries 23 Denmark 23 France 25 Germany 26 The Netherlands 27 Marking to Market 28 Sufficiency Test 29 Sweden 30 Switzerland 31 United Kingdom 31 The United States 32 Australia 33 Similarities and Differences 34 Commonalities on the Asset Side 36 Chapter 3 The Role of the Fiduciary Manager as Chief Advisor 39 The Asset-Liability Study 39 Thinking through Risk and Return 41 Portfolio Construction 42 Selecting and Overseeing Investment Managers 43 Measuring and Benchmarking 43 Education 44 The Trusted Counselor, the Fellow Fiduciary 46 Chapter 4 Shaping the Fundamental Investment Policies 47 Liability-Driven Investments 51 Choosing an Active Investment Policy 52 Integrating Active Policy in the Overall Portfolio 55 Completion Account as a Necessary Adjunct to Active Policy 58 The Fiduciary Platform to Integrate Active Policy in the Overall Investment Portfolio 59 A Special Case: Bridging the Duration Gap 67 What a Fiduciary Manager’s Report Looks Like 68 Chapter 5 Asset-Liability Modeling and the Fiduciary Manager 73 The Role of the Fiduciary Manager 74 The Asset-Liability Model (ALM) 75 Policy Instruments Used in Asset-Liability Modeling 78 Calculations to Cope with Uncertainty 80 The Crucial Role of ALM 81 Asset-Liability Modeling in Practice 82 Prognosis of Future Reserves without Policy Changes 84 Future Financial Situation with Flexible Premium Levels under the Regime of a Fixed Compound Rate 85 Future Financial Situation with Flexible Premium Levels under the Regime of Compound Rates Equal to Market Interest Rates 88 Future Financial Situation with Changes in Investment Policy 100 Policy Changes 102 Where Does Fiduciary Management Fit In? 102 Chapter 6 Fiduciary Management In Practice—Portfolio Construction 105 Defining Appropriate Asset Classes 106 Hedge Funds: Weighing the ‘‘New’’ Alternative 106 Burrowing In: Defining Sub-Allocations 109 Thinking about Style 111 Apportioning the Fixed Income Portfolio 112 Measure for Measure 112 Formulating Mandates for Managers 114 Chapter 7 Horses For Courses—Selecting And Overseeing Investment Managers 115 Creating the Beauty Parade 116 Investment Performance 117 Investment Process and Philosophy 117 Investment People 118 Operational Risk 119 Managing the Beauty Parade 121 Managing the Transition 122 Overseeing the Managers 123 Chapter 8 Performance Measurement and Benchmarking 127 Why Has Benchmarking Grown More Important? 128 The Use of Different Types of Benchmarks 131 Liability-Driven Benchmarks 133 Strategic Benchmarks 134 Fixed Income 136 Equities 137 Real Estate 139 Detailed Benchmarks in the Context of Active Investment Policy 140 Active Overlay Management 143 Rebalancing 144 Measurement of Active Policy 145 Chapter 9 The Fiduciary Manager Experience in the Netherlands and Beyond 151 Changes in Investment Policy 152 Changes in the Role of a Fund’s Investment Committee 153 Changes in the Breadth and Depth of Discussions with Asset Managers 153 Changes in the Communication Process 154 Changes in the Level and Structure of Costs 155 Changes in the Importance of the Custodian 156 Overseeing the Fiduciary 157 Future Developments of the Market for Fiduciary Services 159 Beyond the Netherlands 165 Fiduciary Management Plus 165 Chapter 10 Summing Up Fiduciary Management: What It Is and Is Not 167 Goals, Policy, and Responsibilities 167 Fiduciary Management Can Enhance Productivity 173 What Fiduciary Management Is Not: A Simplification 174 Comparisons with Other Investment Management Models 175 The Concept’s Claims 176 Appendix: Suppliers of Fiduciary Services 181 Notes 259 Bibliography 265 Index 269