2008 was a watershed year as dramatic market movements exposed the flaws in the theory and practice of pension fund management. Solvency declined dramatically, hedge funds did not deliver, rebalancing policies detracted value and liquidity dried up tainting the allure of “alternative” investments. Static policies for dynamic markets are undoubtedly flawed and have to be changed with the support of appropriate liquid, transparent and low cost benchmarks; implicit bets need to be made explicit and managed; naïve performance measures have to be improved; and the CAPM needs to be revamped dramatically. But this process can only start with investors taking the time to understand how various market factors influence assets or managers and then develop a set of rules so that as the factors evolve over time, the optimal portfolio evolves simultaneously. SMART (Systematic Management of Assets using a Rules-based Technique) management of assets and liabilities leads to improved solvency and a lowering of ALM risks. SMART is about introducing good process – namely, only measured and monitored risks can be managed. This book presents a new design for pension fund management that allows CIOs to be smart about managing assets relative to liabilities and, at the same time, allows them to access alpha flexibly (and compensate managers only when they demonstrate skill), thereby improving solvency.
Arun Muralidhar, has experience in and has written extensively on pension reform, asset allocation and currency management. Arun is Chairman and Founder of Mcube Investment Technologies LLC (www.mcubeit.com), and Chairman and Chief Investment Officer of AlphaEngine Global Investment Solutions (AEGIS). Both firms assist pension funds and sovereign funds in asset allocation, currency management and external manager oversight through customized investment advice and the award-winning AlphaEngine® technology. Arun has served as Managing Director at FX Concepts Inc (2001-2008)., Managing Director/Head of Currency Research, at J.P. Morgan Fleming Asset Management (1999-2001) and prior to that, he was Head of Research and member of the Investment Management Committee at The World Bank (1992-1999). Arun is the author of Innovations in Pension Fund Management – Stanford University Press, 2001 (translated into Japanese and Chinese). He is also co-author with the late Prof. Franco Modigliani on a book on reforming Social Security, titled, Rethinking Pension Reform – Cambridge University Press, 2004 and recently edited European Pension Reform, Luxembourg Institute of International Studies, 2007. He holds a PhD in Managerial Economics from the MIT Sloan School of Management, and a B.S. from Wabash College.