 Hey guys, it's MJ the student actually and a lot of people have been telling me that actuarial science is all about mathematics well, I'm reading through some past papers at the moment and Let's see if you think that is still the case after I read you this question Okay, this is from the 2015 Fellowship exam paper Question one. It says you're the investment consultant to the Mazzanzi Mind Workers pension fund Which is the defined contribution pension fund that serves of African mind workers The principal office of the fund has approached you for advice on a proposal he is considering ABC Co is a large multinational diversified mining company and they've decided to close down one of the South African coal mines as it is no longer profitable a group of employees from the mine who are also members of this pension fund have approached the trustees with the suggestion that the MMPF the pension fund by the mind from ABC Co These workers believe that under the new ownership the mine could be turned around and jobs saved Now as the actuary you need to or the investment consultant You need to discuss the merits of the employees proposal and Maybe take you know a few seconds to think what you would say. This is for 14 marks So a rough guide is that you have to look to say 28 things. Well, you know 28 points So I've actually got the solution over here and we're gonna see that it does get quite crazy and Yeah, see if you can pick up any mathematics that that could have helped you in answering this question But here is the solution Okay, merits of the investment One would need to explore the accuracy of the employees claim that the mines fortunes can be turned around under new management Why is ABC who is a large company with presumably extensive mining skills not able to make a profit from the mine? Is this not simply a ploy from the workers to save their own jobs? Mines are price takers and coal is a pure commodity Which means that the strategies available are either produce more coal or reduce costs are either of these possible And if so, why hasn't ABC done so? The nature of the financial vehicle the nature of the financial vehicle will need to be considered How will the mine be held? It certainly would need to be housed in a separate limited liability structure a separate company How would future capital requirements be dealt with will the funds set aside liquidity for this in the future? How will it fit with the fund pension funds are usually passive investors owing minority stakes in listed companies and have no Expertise in managing companies let alone a mine which has this complicated engineering complexities The pension fund will probably not have the corporate government expertise skills and capacity to appoint a competent board and an Operational management team should the pension fund have appetite to develop it What will its cost in time and money to install such expertise if the pension fund buys the mine? Who's going to run it because the current management cannot make a profit so one assumes that this management will be replaced The fund trustees need to consider the extent of their mandate and fiduciary Responsibility will the social responsible investment Considerations while they're likely to be held very important for the members buying a non viable and unprofitable asset to save members jobs May be irresponsible The trustees have a fiduciary duty to all members of the fund and cannot put the interest of a few members It have others the memo goes on to the next page The size of the fund will play a role in the decision if the fund is relatively small The concentration risk of owing a single of owning a single mine may be too high if the fund is very large with a diversified portfolio of investments and Investment in a single mine may not present a significant concentration risk though in this case It would be questionable whether the level of attention it would require could be justified What impact would it have on the liquidity of the fund given that is not a tradeable investment? does it comply with the maximums of regulation 28 and Now assuming that the fund is large enough and that the mine can be purchased with an acceptable Forecasted internal rate of return how all the mines inclusion affect the pension funds existing portfolio of assets What is the funds current allocation to resource shares? How will the inclusion change the exposure to investment drivers like currency commodity prices, etc? How will the inclusion of the mind affect the overall volatility of fund returns? How will it be valued regularly one would want the pension fund not to have an extensive allocation to mining securities? Why well because the pension fund members are mine workers whose livelihoods are already closely linked to mining companies probability and linking a significant portion of their pension funds to mines may not be prudent So there we go. There was an entire exam question and solution Where I don't think we mentioned a number other than regulation 28 So let me ask you again. You still think actuarial science is all about mathematics. Thanks guys I'll see you next time for another video. Cheers