Determining the optimal investment portfolio in civil servants pension fund using Markowitz and value at risk models

During the last five years, the average rate of return on the assets for Civil Servants Pension Fund was only about 15%, and, during that period, about 75% of the financial resources required to fulfill the obligations of the Fund were provided by government grants. In this study, for the goal of asset-liability management of the Fund, determining the optimal investment portfolio of the Fund in major stock market groups has been studied and the proposed solutions for asset management in the form of modifying the fund's investment share in various stock market groups and with the aim of financial stability of the fund have been presented.

Research is quantitative in terms of the type of data and descriptive and applied in terms of purposes and results.Due to the use of the past performance of the stocks in the Fund portfolio and the study of the history of information, it is an event research. Quantitative research data for the period of 79 months (1584 working days) from March 2017 to October 2023 was collected from the data bank of the Iran Financial Information Processing Center of the Tehran Stock Exchange Technology Management Company, and to perform model calculations, the stock exchange assets of the Fund were separated into 18 stock groups, including pharmaceuticals, cement, lime, plaster, rubber and plastic, sugar, tile and ceramic, metal ore extraction, petroleum products, leather products, insurance, computer, non-metallic mineral, food except sugar, basic metals, intermediary financial institutions, investments, chemical, transportation, warehousing and communication, multi-disciplinary industries have been carried out. Data collection and data sorting were done using Microsoft Excel software, and objective functions were solved based on Markowitz patterns and value at risk using MATLAB software.

In the current investment portfolio of the Fund, the major share (about 95%) of the portfolio is dedicated to only three groups including "multi-industry", "transportation, warehousing and communication" and "chemical" and based on the efficiency frontier curve drawn based on historical data, the Fund's current portfolio is not on the mentioned curve, and the need to optimize the current portfolio was determined. The objective functions were solved based on the Markowitz models and value at risk to find the optimal portfolio of the Fund, and in three cases of the current investment portfolio, the optimal portfolio of the Markowitz model and the optimal portfolio of the value at risk model, the average daily rate of return is equal to 0.232, 0.235 and 0.230 percent respectively; the risk of the portfolio was 1.62, 1.31 and 1.21 percent respectively; and the return-to-risk ratio was equal to 0.143, 0.1793 and 0.1908 respectively. Therefore, it can be concluded that among the three studied investment portfolios, the portfolio from Makowitz's model is the best investment portfolio due to the highest return-to-risk ratio.

In order to optimize the current investment portfolio of Civil Servants Pension Fund while maintaining the absolute amount of investment, the share of investment in the "multi-industry", "transportation, warehousing and communication" groups should be reduced and the share of groups such as "sugar", "cement, lime and plaster", "tiles and ceramics", "pharmaceutical" and "investments" should be increased.