Asset allocation in pension funds by using an integrated approach of scenario planning and best-worst method (BWM)

Subject Areas : Financial engineering

seyed mahdi razavi ¹ , mosa bozorgasl ² , meisam amiry ³ , Mohammadhasan Ebrahimi Sarve Olya ⁴ , Vahid Khasehi Varnamkhasti ⁵

1 - Department of Financial Management, Faculty of Management and Accounting, Allameh Tabatabai University, Tehran, Iran
2 - Department of Accounting, Faculty of Management and Accounting, Allameh Tabatabaei University, Tehran, Iran
3 - Department of Finance and Banking, Faculty of Management and Accounting, Allameh Tabatabai University, Tehran, Iran
4 - Department of Finance and Banking, Faculty of Management and Accounting, Allameh Tabatabai University, Tehran, Iran
5 - Department of business Management, Faculty of Management and Accounting, Allameh Tabatabai University, Tehran, Iran

Received: 2020-05-10 Accepted : 2020-08-04 Published : 2021-03-21

Keywords: Delphi, scenario planning, pension fund, asset allocation, best worst method,

Abstract :

Public pension funds in Iran, due to several factors like elder population, accumulation of government debts, increasing the number of pensioners in comparison with the current employees, inefficient management of investments, and lack of good investment policies, will encounter serious crises in the coming years. One of the solutions to tackle this problem is to employ scientific asset allocation models of pension funds. According to the strategic nature of these decisions, in this research, scenario planning was employed to identify the possible scenarios pension funds encountering with. In order to identifying the most important and relevant uncertainties and scenarios, a combination of Fuzzy Delphi Method, Wilson Matrix, and Morphological analysis were used. Findings depicted five scenarios of oil Inflation, currency inflation, non-oil inflation, and resistant economy are the most probable scenarios and pension funds will have to allocate their assets according to the characteristics of these scenarios. Next, best worst method (BWM), was employed to extract each scenario weight and asset classes weights in each scenario as well. To our knowledge, this was the first time to combine such methods in an integrated manner to tackle the asset allocation problem.