Risk Management and the Pension Fund industry

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Risk Management and the Pension Fund industry

University Press Scholarship Online. Publications Pages Publications Pages. Search my Subject Specializations: Classical, Early, and Medieval Plays and Playwrights: Classical, Early, and Medieval Poetry and Poets: Classical, Early, and Medieval Prose and Writers: Classical, Early, and Medieval World History: Civil War American History: Users without a subscription are not able to see the full content. Retirement System Risk Management: Implications of the New Regulatory Order. Perhaps it was no coincidence that, around the time the first interest swaps were implemented for institutional investors, a few individuals in the Netherlands decided to push back against the prevailing investment orthodoxy of the time, which favoured best-of-breed appointments in a value chain that was largely fragmented.

These could include risk overlay or LDI components, or design and build for a bespoke portfolio of diversified alternative assets, with specialisations usually dependent on the background of the provider. This articulates a clear change that has been taking place in the investment management industry, particularly since the fallout from the financial crisis in The emergence of opportunities in a wide range of asset classes in , including corporate credit and convertibles, led some pension funds to adapt their governance models and provider relationships to improve decision-making processes and exploit market opportunities.

Not a few institutional investors, and pension funds in particular, are looking for someone to listen to and understand their problems, to deploy quantitative risk and modelling capabilities in defining a solution, to implement this solution in practice and, in some cases, to have a vested interest in the outcome. This requires a mix of quantitative and qualitative skills, but in many cases places asset allocation skills at centre stage.

Asset managers must be under no illusions as to the capabilities resources needed. Spence Johnson, the London-based consultancy, cites performance, transparency, efficient and effective client servicing, track record, a balance between innovation and simplicity, and effective distribution. Nigel Birch, director at Spence Johnson, singles out two other areas for particular attention — scale and alignment of interests. Some believe it is easier for asset managers to add an element of advisory work to their business than it is for consultants to add execution elements to theirs.

For their part, asset managers say they are aware of the challenges. What we try not to do is draw hard and fast lines. There is less talk of full service fiduciary management than there was three or four years ago, and there has been at least one notable mishap. For Vervoer, an early adopter of fiduciary management, dissatisfaction with the implementation process of the fiduciary, GSAM, led to a lawsuit, which is ongoing.

Pension Fund Investment and Risk Management

As we note elsewhere in this report, there has also been a fundamental shift in thinking about fiduciary management, particularly in the Netherlands, but also elsewhere. Managers are keen to emphasise their flexibility; although they use the fiduciary management label for recognition and convenience, they have no particular affection for it. Other managers are waiting in the wings, or are at least officially not in the market.

Although an internal client may help asset managers hone their problem solving capabilities and solutions infrastructure, it is not straightforward for them to replicate this for other institutions.

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The internal client may distract an organisation from properly servicing the needs of external entities, or raise suspicions that it will always get preferential treatment in trade execution. In early , AXA Investment Managers announced the appointment of Laurent Seyer from Lyxor to run its investment solutions operation, which Seyer soon retitled multi-asset-class solutions.

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Operations are always a challenge but I do believe that for a global company like ours the biggest challenge is the cultural one. Are solutions groups just a repackaging of old capabilities? Are they a rediscovery of a better form of interaction between asset managers and pension funds? Or are they a fundamentally new way for asset managers to interact with clients? Arguably they are a combination of the three.

Risk Disclosure in the European Insurance Industry: Implications for Occupational Pension Funds

But the revenue generation potential for solutions is not as easy to forecast as in other areas of asset management, particularly where consultancy skills are in demand but there is no hourly billing, and where there is no certainty, of winning business for the execution of a particular service.

Urwin points to longevity of relationships as a metric of success: Fluidity is certain in this market, and it is notable that SEI and Frank Russell started off as consultants but later moved away from this model towards implementation, as multi-managers and as delegated CIOs or fiduciary managers. Others may adapt their business models, and many consultants, asset managers and large pension funds will converge on similar business models, involving elements of advice and implementation, with highly customised success criteria and remuneration structures.

Where smaller providers cannot compete in terms of scale for the resources and computational systems necessary, they may collaborate on a formal or informal basis.

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The perfect storm of low interest rates, underfunding, volatile markets and regulatory complexity will not abate for some time. Demand for solutions to real problems is certain to continue. EUR to million. Fixed Income Investment Grade. Latest Analysis Liabilities remain in focus Given overall pressure on funding rates and falling asset markets, looks set to be a year where good governance and adaptability to external events will be crucial The right tool for the job Applying economics models to understand politics is like trying to use a trowel to saw a piece of wood in half.