Elisabeth Bourqui heads the Zurich-based ABB Group Pensions Management team whose remit is to oversee the collective management of the multitude of pension schemes that ABB sponsors worldwide. This includes more than 100 defined benefit and 50 defined contribution funds – both open and closed with different liability and pay-out structures – covering more than 400,000 members.

 

Bourqui joined ABB in 2012 and since then the team has conceived one of the most advanced methodologies for running multiple arrangements in multiple jurisdictions. This is a risk-based approach that is tailored to the needs of each scheme allowing for the best risk-adjusted returns. Rather than rely on a single set of assumptions, the methodology Bourqui’s team applies is designed continuously to question the basis for investment based on both established processes and other sources of information.

 

There are several key challenges that need to be addressed when centrally managing a full range of pension funds that differ fundamentally. Each plan has its own governance structure, independent trustee board and investment committee and operates in a distinct regulatory environment. ABB has to reconcile how different countries expect solvency to be calculated with a whole raft of accounting standards. Overall for the group, Bourqui’s team applies the US Generally Accepted Accounting Principles (GAAP) and then adjusts the results to take account of local practices.

 

The next practical challenge is how best to implement asset allocation strategies consistently across the group. One solution is the use of asset/liability modelling (ALM) to help draft strategic asset allocation policies for each country. Although locally the plans may then make changes – and these can be significant – Bourqui insists the risks inherent in each local asset allocation are presented coherently for the group as a whole.

Tweaking the central allocation to adapt to local markets could depend on different jurisdictions limiting the asset classes a pension fund can invest in. To overcome the challenge this poses, the team attempts to include local laws as much as possible in its central asset/liability studies. 

 

An example of how the group needs to accommodate local regulations is equity portfolios and how much exposure or risk a scheme can take depending on the local market. The question the team has to ask is how much the risk affects both the local plan and ABB Group Pensions as a whole. The solution lies in a specially designed risk management framework built in conjunction with a specialist risk consultancy that relies on both customised and central asset/liability modelling in addition to scenario analyses. This allows the studies to be undertaken at group and local level. The team can change the assumptions and analysis accordingly.

 

Each pension plan has to undertake an ALM exercise once every three years and the result leads to both strategic and dynamic strategies. The strategic allocation is based on a long-term 10-year outlook and will consist of the asset classes and building blocks alongside the relevant benchmarks it will follow. The individual boards will then determine the plan’s risk tolerance and budget.

 

The dynamic strategy typically lasts one to three years and depends on the team continually monitoring the market for changes to relative values in its holdings across asset classes. The dynamic decisions are reviewed at least once every six months.

 

Although ALM models provide a good insight into the expected development of each plan, Bourqui’s team also considers non-quantitative factors that could be considered equally important in the investment decision-making. These include quantitative mathematical models and the outlooks of analysts and economists.