Risk management
The Investments Policy is an instrument the purpose of which is to attain the best results with regard to profitability, risk and liquidity aiming at meeting the expectations of the participants in the Plans. As to the Investment Policy 2008-2014, the definition for the allocation of assets from the PREVI Portfolio took into consideration the risks involved in each investment segment, according to the maturity of each Pension Plan: Plano 1 and Plano Futuro. In that sense, ALM - Management of Assets and Liabilities - was the main tool used for the construction of that Policy, pursuing the best allocation of assets possible.
In the case of PREVI Futuro Plan, the Investments Policy 2008-2014 increased the investment limits in Variable Income to up to 30 % of the guaranteeing funds of that plan. Such decision was based on an inquiry made among the participants, as well in studies of macroeconomic scenarios that appoint to a reduction in the profitability of fixed income assets. PREVI considers good returns to be one of the main factors in the definition of each participant's future income.
In the Investment Policy 2008-2014, the possibility of granting real estate loans up to the limit of 10 % of total investments in order to meet requests from participants, was also contemplated. Market, corporative, liquidity and credit risks are managed in a consolidated manner in PREVI, which adopts the best practices followed by financial global markets, warranting thus an adequate segregation of functions and efficiency in the administration of the risks involved in the investments. Its management is made through Market Risk, ALM and Corporative Committees, which define the management strategies in that matter and involve several PREVI areas.
Corporative Risk - The main purpose of corporative risk is to describe the uncertainties concerning economic value of an asset with regard to the variables that may affect the value of the company, and that are known as "risk factors". The adoption of the corporate risk method permits do deal efficiently with insecurities aiming at reaching an "optimum" balance among growth, income and associated risks. It is an instrument that assists senior management and other executives when taking their decisions.
Credit Risk - PREVI uses its own methodology to define its limitations to risk exposures before financial institutions. Such methodology takes into account rigid technical selection criteria together with the practices used by main risk agencies active in the market, in order to reduce the possibility of asset losses. Those evaluation and selection processes are certified by the Research Institute of the University of São Paulo - USP.
Market Risk - PREVI has consolidated its mechanisms of monitoring credit risks for a great part of its assets. Several reports and information prepared for the use of market risk managers, particularly those dealing with Fixed Income and Variable Income (segments that represent more than 80 % of assets) have been institutionalized. They furnish, for example, the following:
- signs that indicate potential losses (Value at Risk);
- impacts resulting from moments of crisis in the market (Stress Test);
- simulations to measure the impact of buying / selling transactions in the total risk.
ALM - Management of Assets and Liabilities - PREVI counts with methodology that makes it possible to simulate situations in the future balance sheet based on possible scenarios - optimist, pessimist and stress. That methodology counts with the mapping of all assets of the institution as well as of the actuarial obligations under scenarios estimated by the responsible area. With that tool it is possible to estimate future positions and look for protection against adverse market fluctuations. It has become the most important instrument in the preparation of the Investment Policy 2008-2014.
PREVI was invited to the ALM tool in the World Meeting of Risk Managers celebrated in September in the city of Cannes, France, where the latest developments in this area were discussed. That event counted with the participation of large international risk management institutions, as well as of researchers. On that occasion, PREVI practices in the management of assets and liabilities and in the monitoring of liquidity risks, as well, were presented.
Liquidity Risk - PREVI measures its solvability through the liquidity indicators, at the same time that monitors future disbursements through ALM. The main liquidity indicators are:
- Minimum Cash and Liquidity Cushion: represent the cash needs in the next few months for both, the Pension Plan and the Administrative Plan. Once that amount is known, the investments area looks for high liquidity assets, usually Fixed Income Securities with maturities or coupons maturing in the next few months, in order to guarantee an incoming cash flow and be able to meet PREVI obligations independently of conditions in the financial market.
- Indicator of Full Liquidity: indicates the ratio between total payment flows and total incoming flows projected in the future and considering several scenarios. The objective of this indicator is to provide the Investment Policy with negotiable strategies in order to keep the liquidity risk within acceptable levels during the next few years. In addition, that indicator monitors the liquidity of the Pension Plan and indicates, in advance, possible needs to reorient investments, in case of deterioration in the liquidity levels.