Indonesia Pension Fund Asset Allocation During Financial Market Uncertainty Due to Covid-19 Pandemic
Rahmi Bunga Anggraini (a), Zaafri Ananto Husodo, Ph.D (b)

University of Indonesia

Abstract

Aging populations, the low growth and interest rate environment have weighed heavily on retirement savings arrangements. Covid -19 pandemic will certainly compound those challenges for pension fund, as we expect interest rates and investment returns to stay low for some time. This study applies Markowitz^s mean-variance optimization method (MVO) for Indonesian pension fund asset allocation. This study also using Black-Litterman model as comparison and complement the Markowitz^s. To support Black-Litterman model who needs view from investor, we obtained expected return all class assets not only from the market but also from the investor directly. The historical return and risk data used in this study are obtained from daily bond and stock indexes of Indonesia, some mutual funds and also 1-week Jakarta Interbank Offered Rate (JIBOR). This study shows that the asset allocation composition using Black-Litterman generates higher expected return and Sharpe Ratio than MVO model. Therefore, asset allocation suggested to Dana Pensiun Bank Indonesia (DAPENBI) as one of the biggest Indonesian pension fund and others who has same risk appetite, is the optimum weight using Black-Litterman model.

Keywords: Pension Fund- Covid-19, Mean-Variance Optimization, Black-Litterman, Asset Allocation

Topic: Financial