The value of assets transferred to the Fund is expected to reach at least £4 billion by April 2010. For its investment operation to continue to operate efficiently in the light of an increasing portfolio of assets, the Fund should:
a) complete its review of the roles and responsibilities of its Investment Committee and Asset and Liability Committee. This should consider increasing the delegation of responsibility to the Asset and Liability Committee, particularly with regard to the replacement of investment managers;
b) fully develop objective procedures for actively responding to ratings decline among Fund Managers and appointing replacements; and
c) further develop, in line with best practice, capability for detailed analysis of the prospective performance of managers to minimise the risk of counter-productive investments.
The Fund has developed a suitable model for assessing its potential future liabilities. For the Model to be more responsive to changing circumstances, the Fund should:
d) review the transition matrix, which models how probability of default against credit can change over time, in light of recent experience;
e) continue to audit the Model regularly, and at least once every five years to review the cumulative effect of small structural changes, or when large model changes occur, to continue to provide assurance that the methodology and outputs are reasonable and robust;
f) model routinely over the truly long term (15 to 30 years);
g) continue to improve the documentation of the Model in line with emerging best practice;
h) establish a framework for illustrating to a wider audience the sensitivity of modelling results to all key assumptions, such as the specific circumstances of recessionary scenarios; and
i) consider further consultation on the operation of the Model to make it more accessible to employers paying the levy on behalf of schemes.
The recession could increase the Fund's deficit considerably as it takes on the under- funded schemes of a growing number of insolvent employers. To guard against the prospect of an unmanageable deficit, the Fund regularly discusses key metrics, such as the ratio of the assets to liabilities, with the Department and the Regulator.
j) The Fund and the Department should review these metrics each year to confirm their suitability.