BOND INVESTMENT PORTFOLIO OPTIMIZATION FOR PENSION FUNDS USING BOND IMMUNIZATION METHOD : INDONESIAN PENSION FUNDS STUDY

• Main Author: Lingga Ariyan (NIM19014164), Etano
• Format: Final Project
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/21995
• Institution: Institut Teknologi Bandung

In the recent year, the existence of pension funds institution has increased towards the <br /> <br /> Indonesian employee and employer as an option to design a retirement plan. This trend could <br /> <br /> make a pension funds become one of the strong fund resources at Indonesian Stock and Bond <br /> <br /> Market. Furthermore, pension funds institution has significant funds resources to determine their <br /> <br /> investment portfolio diversification in different type of assets. Therefore, the pension funds could <br /> <br /> make their portfolio suitable to their objective. <br /> <br /> However, since Indonesian Financial Services Authority (OJK) established Rules <br /> <br /> No.1/POJK.05/2016 that regulates about Government Bond Investment for Pension Fund in both <br /> <br /> EPF and FIPF, pension funds are struggling to fulfill 30% government bond portion requirement. <br /> <br /> Moreover, some pension funds institution argue that government bond is not liquidate enough <br /> <br /> and mostly does not coverage the expectation in return. Meanwhile, the fluctuation of interest <br /> <br /> rates also harming the overall return of the assets to the liabilities payment obligation that <br /> <br /> pension funds institution has projecting in coming years. <br /> <br /> Therefore, the methods that pension funds could take to prevent the interest rate risk <br /> <br /> affecting the bond price sensitivity is by matching the duration between liability and assets, in <br /> <br /> other words bond immunization. The result of the data analysis will show how these methods <br /> <br /> could prevent the loss in investment cost at any given interest rate condition in Indonesia. <br /> <br /> However, the result of interest rate changing for bond immunization method application to the <br /> <br /> 30% requirement of bond investment proven to be less effective than it should be. At certain <br /> <br /> range of interest rate change, the total asset has a deficit against total liabilities.