Mercedes 2006 Annual Report Download - page 201

Consolidated Financial Statements | Notes to the Consolidated Balance Sheets | 185
Plan assets. At December 31, 2006, plan assets were invested
in diversified portfolios that consisted primarily of debt
and equity securities. Assets and income accruing on all pension
trust and relief funds are used solely to pay pension benefits
and administer the plans. The Group’s pension asset allocation
at December 31, 2006 and 2005, and target allocation for
the year 2007, are presented in the following table:
The entire process is overseen by investment committees which
consist of senior financial management from treasury and
certain appropriate executives. The investment committees meet
regularly to approve the asset allocations, review the risks and
results of the major pension funds and approve the selection and
retention of external managers for specific portfolios.
The majority of investments are in international blue chip equities
and high-quality government and corporate bonds. To maintain
a wide range of diversification and to improve return opportunities,
20% of assets are allocated currently to high-yield debt, convert-
ible instruments, emerging markets, private equity, hedge funds
and commodities. Internal controlling units regularly monitor
all investments. External depositary banks provide safekeeping of
securities as well as reporting on transactions and assets.
(in % of plan assets)
53
35
8
3
1
56
35
4
2
3
56
36
2
2
4
58
25
10
6
1
62
24
8
5
1
61
25
7
5
2
Plan assets
Non-German plans
20052006
2007
planned
Plan assets
German plans
20052006
2007
planned
Equity securities
Debt securities
Alternative investments
Real estate
Other
Alternative investments consist of private equity and debt
investments and, beginning in 2005, investments in commodities
and hedge funds.
Every 3-5 years, or more frequently if appropriate, Daimler-
Chrysler conducts asset-liability studies for its major pension funds.
DaimlerChrysler uses the expertise of external investment
and actuarial advisors. These studies are intended to determine
the optimal long-term asset allocation with regard to liability
structure. The resulting model portfolio allocation is intended to
minimize the economic cost of defined benefit schemes
and to limit the risks to an appropriate level.
The model portfolio is then expanded into a medium-term
benchmark portfolio. The benchmark portfolio matches the asset
class weights in the model portfolio, but expands the asset
classes by adding sub-asset classes with corresponding weights
and assigning specific capital market indices to each sub-asset
class.
Modern portfolio theory is then applied to determine an optimal
one-year target allocation, the performance of which is tracked
against the benchmark portfolio.