Abstract
The paper investigates asset allocation of defined contribution (DC) plan in Ghana using the Tier 2 Master Trust Occupational Pension Scheme (MTOPS) as a case study. The paper focuses on comparing optimal asset allocation solutions under quantitative restrictions and prudent person’s principle, and further assesses the risk exposure of portfolio returns using Conditional Value-at-risk (CVaR). The financial market invested by MTOPS predominantly consists of six financial assets: government securities and bonds, corporate bonds, the money market, listed equities, other collective investments and open and close end funds. Returns are modeled as a geometric Brownian motion and simulated for 10,000 scenarios over a 50-year time horizon. Most MTOPSs violated some quantitative restriction guidelines. MTOPS allocated higher Master Trust Funds (MTF) in low-risk assets: government securities and bonds, T-bills and cash deposits. High-risk assets are found to outperform low-risk assets in the long-term. Only MTOPSs with large market share allocated considerably in high-risk assets: corporate bonds and listed equities. Investment returns of 20.93% with 12.43% average portfolio risk were obtained under prudent man’s rule compared to investment returns of 20.56% with 6.79% portfolio risk under restricted optimization. Given the investment returns over time, CVaR for the total portfolio was 12.81% in worst-case scenario.
Original language | English |
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Pages (from-to) | 17-30 |
Number of pages | 14 |
Journal | Journal of Global Business and Technology |
Volume | 15 |
Issue number | 2 |
Publication status | Published - 1 Sep 2019 |
Externally published | Yes |
Keywords
- Defined contribution
- Master Trust Occupational Pension Scheme
- Prudent Person
- optimal asset allocation
- quantitative restrictions