Axp Asgmt.

**AXP**

This assignment is part of the unique Academic Excellence Program (AXP). This program is a cooperation between MN and PGGM, two leading Dutch pension fund service providers. Students will get the opportunity to work alongside investment professionals, collaborate with other students and learn about institutional investing. On regular AXP-days all students in the program will come together in The Hague or Zeist to share ideas, learn from each other, attend presentations from investment teams and discuss job opportunities.

**Research topic**:
The new pension contract forces investors of pension fund money to reconsider their portfolio construction. The decision to (partially) hedge currency risk within the portfolio is also being re-evaluated. Under the FTK (Financial Assessment Framework) in the current - to be replaced - pension contract, the required own funds (“Vereist Eigen Vermogen” - VEV) play an important role. When not fully hedged, the VEV is higher than with full hedging. Currency hedging can potentially allow the risk budget to be better utilized elsewhere. Under the new pension system, the VEV restrictions are abolished. As a result, taking on more risk is not directly 'penalized' with higher required own funds. This may lead to less hedging in the new pension system compared to the current FTK framework.

Traditionally the costs to hedge emerging markets (EM) currencies where high, especially in comparison to developed markets currencies where spread costs are very low. Lately, we observe a trend in the market, where the spread costs of a growing number of EM currencies are sharply decreasing. This market development are making it cheaper and more efficient to hedge EM currencies.

The two developments that are described above give a need for pension fund money investors to reassess the currency hedging strategy of their clients for the years to come.

**Optimization of the Risk-Adjusted Performance of the Investment Portfolio with currency hedging (including Emerging Markets)**

Hedging the currency risk requires specific strategies, especially given the volatility and risks associated with these markets. A commonly used method is the use of FX forwards to manage currency risks. FX forwards are contracts where two parties agree to exchange a certain amount of currency at a predetermined exchange rate on a future date.

This strategy can help investors protect themselves against unfavorable exchange rate fluctuations. It is important to determine which currencies need to be hedged, depending on the exposure and expected market conditions. For example, if an investor has exposure to the Brazilian real (BRL) and expects it to depreciate against the euro, an FX forward contract can be used to mitigate this risk.

The goal of this AXP assignments is to develop a quantitative model for calculating the optimal hedge percentage. The model should also take into account the cost of hedging of a specific currency and the volatility of the underlying assets in the portfolio. Especially for EM markets, this will most likely lead to different currency hedging strategies in the portfolio then for developed markets.

**Data**

For this project data of the various EM portfolios and corresponding market data (FX, rates, etc.) will be provided.

**Your profile**:
For these assignments we are looking for ambitious students with:

- Quantitative background (eg. Econometrics, Mathematics, Financial Engineering, etc.).
- Programming skills in Python.

**Your work environment**:
The graduation student will be placed in the Investment Management team within the Treasury department of MN Asset Management. The Treasury department is responsible a.o. for managing the liquidity portfolios and currency overlays of our Dutch pension fund clients. The team comprises of five investment managers, four collateral and securities lending managers, two algorithmic execution specialists, one analyst and the head of Treasury. Next to the Treasury department, the so-called Ketenteam Spread will be involved. Ketenteam Spread is responsible for the execution of product mandates, selecting and managing asset managers within their asset classes, and providing internal and external advice on these asset classes.

**MN as an employer**:
MN is serving 7 pension fund clients in the areas of Board Advisory, Asset Management, and Fiduciary Management. For our clients we manage pension assets worth approximately EUR 150 billion, that makes MN the third largest pension fund Asset Manager in the Netherlands. About 35.000 companies (employers) in various industries are affiliated with our clients, representing about 2 million pension fund participants in total. We invest globally in equities, government
- and corporate bonds, loans, real estate, and private equity, etc.

**As an MN employee, you can expect**:

- A monthly internship allowance;
- Emphasis on work-life balance and flexibility in working hours;
- Numerous opportunities f