Otpp Case Study
Case Study
Ontario Teachers’ Pension Plan
Patrick Jordan, John Schneider, David Mundorf, Alexandre Champavere, and Lezhi Huang
Table of Contents
Ontario Teachers’ Pension Plan............................... 2 Background .............................................................. 2 Risk Assessment ....................................................... 2 Portfolio Selection Analysis ...................................... 3 Optimal Asset Allocation.......................................... 4 Recommendations.................................................... 4 References ................................................................ 5 Exhibit 1.................................................................... 6 Exhibit 2 ................................................................... 7 Exhibit 3 ................................................................... 8 Exhibit 4 ................................................................... 9 Exhibit 5 .................................................................. 10 Exhibit 6 .................................................................. 11 Exhibit 7 .................................................................. 12 Appendix 1 ............................................................... 13
Ontario Teachers’ Pension Plan
Background
The Ontario Teachers’ Pension Plan Board (OTPPB) provides retirement benefits for nearly 200,000 employees. The primary goal for the OTPPB is to “secure and deliver expected benefits at current or lower levels of contribution within an acceptable range of costs.” Indeed, the primary goal seems quite intuitive, but the formalized problem is more complex. The OTPPB, like any institution, holds both assets and liabilities. Therefore, the primary objective can be defined as maximizing the surplus (assets – liabilities) given that contribution rates must remain in some predefined interval for a given level of confidence. Given this objective, it is
Ontario Teachers’ Pension Plan
Patrick Jordan, John Schneider, David Mundorf, Alexandre Champavere, and Lezhi Huang
Table of Contents
Ontario Teachers’ Pension Plan............................... 2 Background .............................................................. 2 Risk Assessment ....................................................... 2 Portfolio Selection Analysis ...................................... 3 Optimal Asset Allocation.......................................... 4 Recommendations.................................................... 4 References ................................................................ 5 Exhibit 1.................................................................... 6 Exhibit 2 ................................................................... 7 Exhibit 3 ................................................................... 8 Exhibit 4 ................................................................... 9 Exhibit 5 .................................................................. 10 Exhibit 6 .................................................................. 11 Exhibit 7 .................................................................. 12 Appendix 1 ............................................................... 13
Ontario Teachers’ Pension Plan
Background
The Ontario Teachers’ Pension Plan Board (OTPPB) provides retirement benefits for nearly 200,000 employees. The primary goal for the OTPPB is to “secure and deliver expected benefits at current or lower levels of contribution within an acceptable range of costs.” Indeed, the primary goal seems quite intuitive, but the formalized problem is more complex. The OTPPB, like any institution, holds both assets and liabilities. Therefore, the primary objective can be defined as maximizing the surplus (assets – liabilities) given that contribution rates must remain in some predefined interval for a given level of confidence. Given this objective, it is