Investment policy of Voluntary Pension Fund Generali Index

The investment policy of the Voluntary Pension Fund Generali Index aims at defining the framework and clear guidelines for investment and asset management fund of Generali Index. The purpose of the investment policy is to provide a detailed description of the investment management process of the Fund providing clearly defined responsibilities of all participants in the process. At the same time, the investment policy emphasizes investment objectives, associated risks, investment restrictions and investment time horizon.

  1. The Fund Generali Index aims at providing additional income to add-on state pensions for their members. The Fund is designed for members who want protection from fluctuations of the dinar exchange rate compared to euro. Generali Index represents a type of funds which preserve assets value in the euro currency.
  2. Fund assets are invested with the aim of increasing the total return for the benefit of members of the Fund, and in accordance with the following principles:
    • Principle of security of the Fund's assets (the Fund's portfolio structure contains securities of issuers with a high credit rating);
    • Principle of portfolio diversification (the Fund's portfolio structure contains securities diversified by type, issuer and other characteristics)1;
    • Principle of maintaining adequate liquidity (the Fund's portfolio structure contains securities that can be quickly and efficiently bought and sold at relatively uniform and stable price).
    Return on investment should be consistent with the risk exposure that is appropriate and takes into account both long term market conditions as well as investment objectives of the Fund. The investment process reflects the parameters that ensure the unhindered execution of the adopted investment program, thus ensuring a sufficient level of flexibility for the use of specific favorable investment alternatives at the time when these become available.
  3. The investment style is predominantly passive and is based on the strategic allocation of assets by taking positions that follow the risk-return relationship of individual asset classes. Generali Index represents a type of Funds which preserve asset values.
  4. Fund assets are invested in accordance with the long-term investment horizon, while at the same time, given the conservative investment policy and the relatively low volatility of returns it is adjusted to medium, and even in certain cases, to a short-term investment horizon.
  5. The Investment Committee is responsible for managing the investment process. Members of the Committee study, adapt, recommend and implement investment policies, as well as all related operational procedures in order to ensure that funds are invested in accordance with the outlined policy. At the same time, the Investment Committee monitors the performance class of assets that construct the portfolio and provides an adequate system of internal controls designed to protect assets of the Fund. The Investment Committee is responsible to the Board of Directors for the observation of the investment policies and meets at least once a month.
  6. Proposal for the modification of the investment policy is passed by the Investment Committee, at the suggestion of a member of the Investment Committee. The Board of Directors adopts the investment policy. The reasons for the change in investment policy can be significant changes in the market, the adoption of the new regulatory framework, the identification of new risks, etc. Following each significant change of investment conditions, the VPF Management Company regularly and at least once in three years, reviews their investment policy.
  7. In case of a change in the investment policy, VPF Management Company Generali Index is required to notify the members of the Fund not longer than 30 days prior to the effective date of the change in investment policy. The notice shall state the reasons for changing the investment policy and the forecast related to the manner in which the investment policy will affect the returns of the Fund. i.e. the forecast pertinent to the impact of changes on the riskiness of the Fund portfolio, strategic allocation, and the impact on other segments of the investment policy. At the same time, the notice will contain the key changes to the investment policy, as well as the change in objectives, tolerance to risk, strategic allocation, etc.
  8. Following the change in the investment policy, member shall have the right to transfer money to another Fund within 30 days whereupon the Company will bear the cost of the transfer.
  9. Investment objectives are subordinate to the main goal which includes providing additional income in addition to the state pension for the members of the Generali Index Fund. The objectives include the maximization of return in accordance with the assumed risk and preserving the value in Euros. At the same time, the objective is the achievement of Fund's yields above the benchmark portfolio in the previous 5 years. Benchmark portfolio is composed of different indices/benchmarks for each investment category where the individual weights indices/benchmarks represent the strategic allocation of funds for a period of 3 to 5 years. Benchmark yield will be adjusted for a management fee - the dominant percentage of the calculated and charged management fee shall be reduced from benchmark yield. Investment objectives focus on the long-term investment horizon and any deviations related to the return within the framework of prominent goals in shorter periods of time shall be viewed and considered in this context as well.
  10. Risk is viewed as uncertainty about the future value of invested assets. In keeping with the modern portfolio theory, investment risks cannot be eliminated, but they should be managed so as to be balanced with the expected yields. Assets of the Fund will be diversified so as to minimize the risk of significant losses within each asset class, individual types of investments and individual maturities. In this regard, one of the goals from the standpoint of risk is the likelihood that the fall of the investment fund unit denominated in euro currency from over 10 eurocents will be below 1%.
    Special attention will be focused on classes of assets that have previously had a higher volatility yield than the yield volatility of the portfolio as a whole. This especialy does apply to foreign currency savings bonds and euro- denominated assets, the standard deviation yields of which have had a dominant influence on the overall standard deviation of the return of the portfolio. Risk exposure shall be largely determined by the strategic allocation of Fund's assets.
    Given the selected complete exposure2 of the Fund to the euro currency i.e. given that it is a euro fund3, foreign exchange risk essentially does not exist.

1 To extent that the euro denominated securities Serbian market it allowed.
2 With the exception of several percent of Fund’s total assets due to the fact that transactions, payments to and from the Fund are made in dinars and a small portion of assets is held in dinars for the providing current liquidity.
3 Which has a legal obligation to publish the value of investment units in dinar.

Asset class Market risk4 Credit risk5 Liquidity risk6
Euro denominated government bonds Moderate7 Low Moderate
Evroindeksirani zapisi Trezora Moderate Low Moderate
Novčana sredstva i oročeni depoziti Low Moderate Low
Generali Index Moderate Low Moderate

4 Market risk is measured by volatility of returns of individual asset classes, and portfolio as a whole. High Market risk represents the standard deviation of return higher than the portfolio as a whole; a moderate Market risk represents standard deviation return in the range of portfolio as a whole; low risk is standard deviation of return lower than the standard deviation of portfolio as a whole.
5 Credit risk is measured in accordance with the categorization that is being conducted at the Generali PPF group.
6 Liquidity risk is measured as the value of liquidity risk for the securities that are included in the organized market.
7 High, for all listed securities.

11. The Investment Committee has adopted the following strategic allocation of the fund's assets, including weights for each class of assets, the benchmark for each asset class as well as for the benchmark portfolio as a whole:

Asset class Strategic asset allocation Allowable ranges
Minimum Maximum
Euro denominated government bonds 55% 60% 100%
Euro denominated T Bills 25%
Money and term deposits 12.5% 0% 25%
Others in accordance with the regulatory framework8 7.5% 0% 15%

 

Asset class Benchmark Weights
Euro denominated government bonds Simple price index of issued EUR bonds 60%
Euro denominated T Bills Simple price index of issued EUR T Bills 25%
Money and term deposits 3 months EURIBOR +1% 15%
Others in accordance with the regulatory framework9 / 0%

8 Real estate, investment units of open investment funds, shares on the Belgrade Stock Exchange for which there is a bid with price expressed in euros, foreign investments, municipal bonds, corporate bonds, etc, in accordance with the Law and the Decisions of the National Bank of Serbia.
9 Ibid.

12. Due to the changes in the market, inflows or outflows from the Fund, as well as due to motion of yields of individual classes of assets, there may be some changes in the participation of individual classes of assets in relation to the defined strategic allocation of assets.
At least once a month, the Company shall check the deviation of the current structure in relation to the strategic allocation. In case of deviations from the strategic allocation limits, the Company will promptly perform portfolio rebalancing. Portfolio rebalancing shall be done in accordance with the targets and strategic allocation shall be performed on a quarterly basis.