Optimizing Pension Fund Investment Portfolio Using Post-modern Portfolio Theory (PMPT) Study Case: An Indonesian Institution

Abstract

Categorized as first-level funding by OJK, their asset is greater than its actuarial present value, the funding ratio is greater than 100%, and the Pension Fund of PT XYZ (Dapen XYZ) found that their net asset was not growing as they should. This study employs Post-Modern Portfolio Theory (PMPT) to address the current issue facing the company, with the goal of determining the optimal extant portfolio and optimal stock recommendations from the IDXQ30 Index. The company’s portfolio optimization complies with OJK regulations and its investment direction, with the proportion of direct investments and property assets remaining unchanged. The findings showed the historical existing portfolio of Dapen XYZ from 2018 to 2022 has an expected return of 5.27% with a downside risk of 5.00%. Through optimization and substituting the composition of the listed stock with the optimized one, the overall portfolio might yield a 6.80% return with a 3.59% downside risk; this result is still below its target. This optimization suggested emptying the deposits, corporate bonds, and mutual funds and focusing on listed stock instruments. This action will yield an 8.80% return on 1.70% downside risk. In conclusion, the current portfolio of Dapen XYZ is not optimal, and the decision of the fund manager to re-enter the stock market for its portfolio is perfect for the current situation since this instrument might yield higher profit and liquidity if they are willing to change their stock universe to the more profitable one.