Active, passive or hybrid mandates are implemented to achieve the identified investment objective considering the governance budget, investment beliefs and investment efficiency.

The portfolio is constructed with appropriate efficiency and diversification.

The investment philosophy and process is framed with reference to the investing institution’s skills, resources and processes.

Appropriate benchmarks and investment return targets are selected for use in analysing the performance and risk of the investing institution’s investments, whether managed internally or externally.

It may be possible to take advantage of asset market movements and changes in the value of the investing institution’s portfolio to implement a dynamic de-risking or re-risking strategy. The board, management and investment committee consider on a regular basis rebalancing the portfolio so that it is in line with the investing institution’s strategic asset allocation objectives.

As asset market values change over time, the investing institution is able to exploit variations in market valuations by investing differently than in the strategic asset allocation, while respecting the risk budget established in Guideline 7.

This process of dynamic investment (sometimes referred to as tactical investment) will be limited in time but the maintenance of such a position apart from the strategic asset allocation may subsist in the medium term.

Risk budget analysis is conducted to better understand the level of investment risk being taken and how it could be managed, and to determine an appropriate strategic asset allocation considering the risk budget established (as covered in Guideline 7).

Spending the risk budget enables the investing institution to determine an appropriate strategic asset allocation considering the available risk budget, investment assumptions, restrictions on investments and liabilities, and funding policy.

The investment assumptions used in determining the investment strategy of the social security institution are fit for purpose. These assumptions will include assumptions for return, risk and correlation, and other factors as appropriate. Assumptions are considered over a suitable time frame (typically long term) to ensure the output of any modelling is consistent with the time horizon of the mission and goals of the social security institution.

In setting the objectives of the social security institution, the board considers the role of socially responsible investing (SRI) and environmental, social and corporate governance (ESG) to ensure the investment policy and strategy are consistent with the mission (where the mission includes elements of SRI and ESG).

This objective applies to both an internal investment institution and an external investment manager.

For social security institutions that have an investment mandate, legislation, policy or decree may establish the general direction of the investment policy and prescribe the types of allowed investment instruments. Any legal or regulatory restriction is documented and incorporated into the social security institution’s investment mission and strategy or appropriately communicated to external investment managers.