Personalizing ALM-based Investment Strategies for Default DC Members

Personalizing ALM-based Investment Strategies for Default DC Members

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Speaker(s): Brnic Van Wyk (QSuper)

In 2013 QSuper launched the QSuper Lifetime product with a unique lifecycle strategy that uses age and account balance (wealth, or savings in the fund) to cohort default defined contribution (DC) members.Traditional asset/liability management (ALM) methodologies with stochastic projections are used to set investment strategies for each cohort.A common pool of growth (or risky, return seeking) assets is combined with a cohort-specific duration based risk hedge asset pool in various proportions.There are no pre-determined glidepaths and strategies are dynamically reviewed.Traditional asset-only performance measurement is complimented with defined benefit (DB) concepts of monitoring and attribution of changes to projected outcomes.

Work is underway to move away from eight cohorts and personalise the allocation of investment pools to create mass customisation of investment strategies.This means that each of the circa 460,000 default DC members will be assessed on an individual basis to determine the growth and hedge proportion allocation. Investment strategies for individuals will change over time as their demographic characteristics change.
With the ALM team operating in the fund's internal investment function, this presentation will focus and seek feedback on:

  • the learnings from the initial product structure, with a brief description of the original ALM methodology applied;
  • how to define the liability in a DC fund;
  • the range of member outcome risks being considered;
  • using factors other than age and wealth e.g., gender or contribution rate to allocate strategies to members;
  • different types of risk hedging asset pools with dynamic duration adjustments;
  • using observed participant behaviours to inform structure and assumptions;
  • practical application of business rules relating to the frequency of rebalancing; and
  • the importance of the interaction with estimated social security benefits.

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