Page 86 - SUSTAINABILITY ISSUES & COVID-19

After the AKM Pension Fund identifies its objectives, targets, and investment limits, the next step is to formulate
a portfolio policy and strategy. Analysis of the 2019 AKM Pension Fund investment policy statement shows that it
has stated description of the client, the purpose of establishing policies and guidelines; investment duties and
responsibilities of the parties involved; statement of goals, objectives, and investment constraints; a schedule for
investment performance reviews and investment policy statements; considerations in developing strategic asset
allocations; as well as investment strategies and investment styles. This is following the stages of investment policy
formulation following (Bodie et al., 2014). However, investment policy formulation also requires guidelines for
rebalancing. This has not been prepared by the AKM Pension Fund.

The next step is to set market expectations. In preparing market expectations for 2019, the AKM Pension Fund uses
the macroeconomic growth assumption for 2019 of 5.10%; inflation of 4.5%; Bank Indonesia (BI) interest rate in 2019
at 6.5%; the Rupiah exchange rate against USD is around Rp14,600; and the Daily Composite Index (JCI) at the level
of 6,700. Based on these market expectations, the time deposit rate may change compared to 2018 to 7.50%. Besides,
the 10-year 2019 SBN yield is estimated to be in the range of 8.38%, while bond coupons will follow the movement
of SBN yields. Based on these market expectations, AKM Pension Fund has prepared a portfolio yield target without a
Revaluation Difference (SPI) in 2019 of 9.

Furthermore, in asset allocation planning is to compile strategic asset allocations. AKM Pension Fund has prepared its
asset allocation for 2019 with a composition of savings, DOC 0.1%; time deposits of 8.3%; SBN of 22.7%; shares of 3.4%;
bonds by 43.8%, EBA by 2.9%; direct investment of 16.6%; and land and buildings at 2.4%. The strategic asset allocation
of the AKM Pension Fund in 2019 shows that the largest composition is bonds and SBN. Besides, there are also asset
allocations in short-term assets, namely savings, DOCs, and time deposits.

Following its investment objectives and targets, AKM Pension Fund has arranged strategic asset allocations that
provide a return rate above 8%, namely without SPI of 9.63% and with SPI of 8.43% following the target yield of each
instrument. the asset. Besides, in meeting the regulatory limitations of the OJK, AKM Pension Fund has allocated a
minimum SBN of 30%, of which 50% can be allocated to corporate bonds for infrastructure purposes. Next, following
liquidity limits, AKM Pension Fund also allocates its assets to short-term assets, namely savings, DOC, and time deposits.
Even though the allocation of these assets is small, AKM Pension Fund has fulfilled the availability of assets that can be
used to fulfill liquidity. The AKM Pension Fund also meets the demographic limitations of participants, the majority are
retirees. This is indicated by the allocation of assets in 2019 which were mostly placed on SBN and bonds, namely 22%
and 43.8%, respectively.

In the implementation of its asset allocation planning stage, AKM Pension Fund has carried out most of the steps, namely
setting investment objectives or targets, forming capital market expectations, and creating strategic asset allocations.
However, in forming its investment policy, AKM Pension Fund needs to formulate guidelines for rebalancing.

Implementation
In evaluating the implementation asset allocation, we find that the management has determined its tactical asset
allocation using profit-taking on existing shares if the profit target (gain) of shares has been exceeded, switching
strategies, and divesting the bonds that are downgraded. However, at the time of allocating its assets, the AKM Pension
Fund had not taken steps to find a portfolio that could achieve the maximum rate of return for each particular risk level.
Furthermore, AKM Pension Fund has not taken steps to find the optimal asset mix so that it meets the best return and
risk combination that meets the investment constraints faced by AKM Pension Fund. Thus, it could lose the potential to
achieve more optimal level with the best combination of return and risk in its asset mix.

In selecting securities, based on the analysis of investment policy documents and the RKAPB, AKM Pension Fund
has selected securities by considering the acceptable level of return and risk as well as considering the compatibility
between the maturity profile of the portfolio and the estimated long-term policy. Furthermore, the document review
shows that the selection of securities by the AKM Pension Fund is carried out by prioritizing prudence, namely securities
which are mainly issued/issued by State-Owned Enterprises (BUMN).

International Conference on Sustainability 85
(5 Sustainability Practitioner Conference)
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