Welcome to the 'Pension Fund Weigh House'. Investment Benchmarking of Pension Funds has been made extremely difficult.
Just ask your Pension Fund's actuary whether your Pension Fund has achieved a 'market conform investment performance'... For sure you'll get a dazzling multiform and relative answer. It's all about 'market indexes' (stock and bond indexes), risk appetites, asset mixes, derivatives, uncertainty and lots of other interesting complex stuff that underpins the fact that the final answer to this simple question is nuanced, complex and relative.
A simple question
Ahead of all this growing complexity and 'levels of detail', a first key question has to be answered by every Pension Fund:
Was it worth setting up a complex multi fund investment plan instead of simply investing in 10-Years Government (Treasury) Bonds over an arbitrary period of (at least) the last 10 years?
Even this simple question, will probably not lead to a simply answer from your fund's investment manager or actuary.
Pension Fund Weigh House Help
This is where the help of the 'Pension Fund Weigh House' comes in... Just look up the yearly return over the last ten years in your Pension Fund's annual report. Next, do the test here at 'Pension Fund Weigh House', and see for yourself whether your Pension Fund has performed better than the simple benchmark: 10-Y Bonds... or the S&P 500 Index..
Did your Pension Fund perform better than Bonds? (the compound mean over the last 10 years) Congratulations!
Was it worth the risk? Well..., just look at the Risk (Standard Deviation) or - even better - the Sharpe Ratio at different levels of possible 'Risk Free Rates' to find out. The Higher the Sharpe Ratio, the more it was worth to take the risk.
To compare Bonds 'fair' with Market Value based Pension Fund performance, the yearly Bond interest rate is translated into a yearly Market Value performance. This is done by assuming that each year, all '10-Y Bonds' bought in January of a specific year are valued, and sold at the interest rate one year later.
Do it yourself
The standard example as presented here on this site, concerns the performance of the Dutch pension fund ABP, the third largest pension fund of the world. Answer the key question 'Was it worth?' for ABP for yourself.
You may easyly change the numbers and 'heads' in this application for your own fund or change both columns to compare two pension funds.
Compare either to '10-Y Euro Government Bonds' or '10-Y US Treasury Bonds' by pressing the 'Euro/US switch'.
Have (professional) fun!
M a r k e t V a l u e
Data: US Treasury Bonds I
Data: US Treasury Bonds II
Data: Euro Government Bonds
Excel Spreadsheet Data
Risk: Gummy Stuff
S&P 500 Index (CAGR)
Euro - US Switch
S&P 500 Index Switch
Please take serious notice of the next general
that applies to this application.
This application, Pension Fund Weigh House, is part of Actuary-Info.