consideration to ensure that they can absorb shocks while the bank is still functioning. banks ’ leverage will have to be limited in some shape or form. banks also have a responsibility to actively manage their own complexity. in this regard, i think a proposal that is rightly being considered is that of “ living wills ”. living wills are plans drawn up by banks for an orderly wind - down of operations, in case they are not able to continue operating on a going - concern basis. this would be very beneficial to financial stability in case of a large - scale default. lehman brothers, for instance, was composed of over 3000 legal entities at the time of its demise. better guidance on how the organization could be properly wound down would have made life considerably less stressful for its supervisors, counterparties and administrators, as well as the financial system as a whole. as an aside, the legal profession has a role to play here as well. the number of entities may be one useful proxy for the level of complexity in an organization, but the combined length of all the contracts determining the mutual obligations between these entities surely is another. at the end of the day, one of the key qualities of the legal profession is to make complexity more manageable by providing market participants with clear, unambiguous and concise contracts rather than the opaque, heavily cross referenced and nearly inaccessible piles of paper that one too often encounters in practice. here, as always, more is less, less is more. true craftsmanship produces documentation that even a layman can appreciate and more importantly, understand. by comparison, i think the changes needed in the supervisor ’ s toolbox have not always received the same amount of attention. these changes are crucial, though, to ensure that supervisors are well - equipped to ensure the resilience of the financial system in a complex world. recent events have again confirmed that in some cases, our options for intervention are limited and can only be exercised at a late stage. for the supervisor to be effective in an increasingly complex and interconnected world, it will need more power to intervene at an earlier point in time. internationally, promising policy has already been implemented in this regard, such as the special resolution regime in the united kingdom. making it work as i see it, banks should welcome all these measures. bigger capital buffers and the existence of living wills enhance the stability of the financial system. so does the existence of a more powerful supervisor with an enhanced toolkit. financial instability in the

returns are likely to be lower. the starting point for calculating the expected rate of return on the portfolio is the real interest rate on high - grade government bonds. in recent years, bond yields in real terms have been close to zero. low bond yields reflect global economic conditions : governments, businesses and households are seeking to save more, while demand for safe investments has increased. substantial asset purchases by central banks are pushing in the same direction. low yields may also reflect modest expectations of economic growth further ahead. historically, equities have yielded higher returns than bonds. we also expect that to be the case ahead. still, it is doubtful that equity prices will continue to rise at the same pace as in recent years. weak or moderate growth in the real economy will feed through to the return on equities. the share allocated to real assets has increased gradually after equities were first introduced in 1998. soon, almost two - thirds of the fund will be invested in real assets. as we gain experience in real estate investing, it may be natural to invest in other types of real assets, or increase the equity allocation further. in the long run, a bond allocation of 20 – 25 percent should suffice to maintain the fund ’ s needed hedge against fluctuations in equity prices and execute the rebalancing strategy. chart : global investments another of the fund ’ s characteristics, which in particular has an effect on risk management, is its large size. a main tool to manage the risk faced by the fund is diversification. with a fund of this size, we have ample opportunities to diversify. stocks in different companies in a variety of sectors, loans to governments and corporations, and real estate investments in a number of global cities are all parts of the portfolio. at the end of 2014, the fund had investments in securities from almost 10 000 issuers in 75 countries. the fund is a global investor. prices in financial markets carry information about the risk and return prospects of different assets, and the markets are fairly efficient most of the time. hence, a natural starting point for the allocation across regions is the size of the different financial markets. however, the weights assigned by the fund to different geographical regions are the result of a trade - off between various considerations. the fund is a minority shareholder and dependent on good corporate governance and protection of our rights in legal systems. regulatory conditions in investee countries must be relatively stable, and we must be reasonably sure that our investments are safe. from