SCOTTSDALE, Ariz. -- The San Diego County Employees' Retirement Association has found success using futures overlays to keep its actual asset allocation in line with its target, said Robert Snigaroff, chief investment officer for the $3.5 billion fund.
"The overriding goal is to manage allocation drift. This we've done," he said, speaking at the 1999 Risk Management Conference, an End User's Forum jointly sponsored by the Chicago Board of Trade, Chicago Board Options Exchange and London International Financial Futures and Options Exchange.
San Diego County, he said, uses futures contracts to effectively eliminate its cash positions, and does so using U.S. equity, non-U.S. equity and U.S. fixed-income futures contracts.
As of Nov. 30, the fund had 2.3% of its portfolio in U.S. equitized cash, 0.4% in non-U.S. equitized cash and 0.7% in "bondized" cash.
For the five years ended Sept. 30, the county's value added from its allocation drift -- similar to tracking error in an index fund -- was zero, he said. The fund doesn't shoot for zero, he said, but coincidentally hit it for the five-year period.
Other periods ended Sept. 30 reflect what fund officials consider successful but more realistic outcomes. In the third quarter, the value added was -7 basis points; for the year, -13 basis points; two years, -11; and three years, -12.
Value at risk was a major topic at the conference. Leo de Bever, vice president of research and economics for the Ontario Teachers' Pension Plan Board, North York, discussed how VAR and other risk tools are used at the Canadian fund. The fund, an innovator in the use of risk budgeting, is using risk methods to calculate probabilities of the fund not having an actuarial surplus.
Some fund overseers, he said, were surprised to see what the statistics indicated. The expected pension surplus varies widely, particularly when looking at an annual basis. The fund's analysis shows the Ontario Teachers' expected change in surplus ranging from -C$11.4 billion (U.S.$7.7 billion) to C$11.5 billion.
It is important to assign risk responsibilities to a single person, he said, so that accountability is clearly defined.
While VAR works for Ontario teachers, "you can't make this the only risk tool you use. You have to use your common sense," Mr. de Bever said.
