EDHEC-Risk Institute has created a research chair in "Regulation and Institutional Investment", in partnership with AXA Investment Managers (AXA IM), which is under the scientific responsibility of Noël Amenc, Director of EDHEC-Risk Institute, and Samuel Sender, Research Associate.

The interaction between regulation and institutional investment management is a key issue for European institutional investors, and the aim of the chair is to carry out a joint operation on a European scale to highlight the challenges for institutional investment management of regulatory developments.

The theme for the first year of this three-year programme was "The influence of the institutional and regulatory framework on the financial management of pension funds in Europe."

[Press release announcing the launch of the research chair: 21/09/07]

Research output:

The Elephant in the Room: Accounting and Sponsor Risks in Corporate Pension Plans
March 2011
Samuel Sender
As part of the AXA research chair on regulation and institutional investment, EDHEC surveyed corporate pension funds, their sponsors, and advisers to assess how sponsors manage pension risk and how pension funds manage sponsor risk. There are 100 respondents to the survey; they manage pension funds assets of more than €730 billion (the assets of sponsoring companies are greater than €5.5 trillion). [Press release announcing the publication of the research: 21/06/11]

EDHEC-Risk Survey of the Asset and Liability Management Practices of European Pension Funds
June 2010
Samuel Sender
EDHEC took a survey of pension funds, their advisers, regulators, and fund managers. One hundred twenty-nine of these asset/liability management (ALM) specialists, representing assets under management (AUM) of around €3 trillion, responded to the survey. EDHEC Risk Institute finds, amongst other key conclusions, that the majority of respondents have a blinkered view of their risks: accounting risk (the volatility from the pension fund in the sponsor’s books) is managed by only 33% of respondents, and more than 50% ignore sponsor risk (the risk of a bankrupt sponsor leaving a pension fund with deficits). In addition, pension funds generally do not assess the adequacy of their ALM, a failing that may lead to sub-optimal decisions’ being taken again and again. [Press release announcing the publication of the research: 27/09/10]

Reactions to an EDHEC Study on the Impact of Regulatory Constraints on the ALM of Pension Funds
October 2009
Samuel Sender
EDHEC surveyed pension funds, their advisers, their regulators, their fiduciary managers, and their asset managers for their reactions to an EDHEC study entitled “Impact of regulations on the ALM of European pension funds”. The call for reaction elicited 142 non-blank responses and is the first international survey in which both regulatory constraints and the means of managing them—modern ALM techniques—are assessed jointly. 93.7% of respondents (95.3% of those from pension funds) report that they are somewhat or very familiar with accounting and/or prudential constraints for pension funds; the results of the call for reaction are very much aligned with EDHEC’s views that modern ALM techniques are instrumental in managing minimum funding constraints and that short-termism is counterproductive for pension funds. In addition, the respondents believe that risk management is more instrumental in protecting minimum funding ratios than high initial funding ratios; the implications are that regulations should provide incentives to build internal models. [Press release announcing the publication of the research: 05/11/09]

The European Pension Fund Industry Again Beset by Deficits
April 2009
Samuel Sender
In 2003, the pension fund industry was severely affected by the steep fall in equity prices and the fall in interest rates. This fall and its consequences led to broad regulatory changes and spurred work on asset and liability management theory and techniques. But it seems that these new regulations and techniques have not enabled the pension fund industry to weather the current return of the perfect storm? We go over recent publications and look into the reasons for the fall in funding ratios.

The Impact of Regulations on the ALM of European Pension Funds
January 2009
Noël Amenc, Lionel Martellini, Samuel Sender
This study analyses the impact of prudential and accounting constraints on the asset-liability management (ALM) of European pension funds in the Netherlands, the UK, Germany, and Switzerland. It is our conviction that the two main conclusions of the study—that the retirement system would be more stable if regulators were more willing to tolerate short-term risk and that pension funds should build internal models for their investment strategies—will have far-reaching consequences on institutional investment in Europe. [Press release announcing the publication of the research: 28/04/09]

Related research:

Are there really any risk-free rates?
January 2009
Samuel Sender
When government bonds are risky and regulators overly prescriptive.

The Impact of IFRS and Solvency II on Asset-Liability Management and Asset Management of Insurance Companies
November 2006
Noël Amenc, Philippe Foulquier, Lionel Martellini, Samuel Sender
A study that reveals the contradictions inherent in the current Solvency II and IFRS provisions for insurance companies. The report shows notably that the numerous provisions proposed by the IFRS are at odds with the good risk management practices put forward by Solvency II. This research was supported by AXA Investment Managers.

Solvency II
Links to EDHEC-Risk Institute's position papers on the Solvency II project that aims to reform regulatory capital for insurance companies.

Managing Pension Assets: from Surplus Optimization to Liability Driven Investment
March 2006
Lionel Martellini
A paper introducing a formal continuous-time model of intertemporal asset allocation decisions in the presence of liability constraints, and discussing how recent industry trends such as liability-driven investment fit with respect to the theoretical optimally designed strategies.

Related events:

The Elephant in the Room: Accounting and Sponsor Risks in Corporate Pension Plans
An exclusive presentation of the second-year research work carried out as part of the EDHEC-Risk Institute/AXA Investment Managers research chair on Regulation and Institutional Investment
Paris – May 16, 2011
Amsterdam – May 17, 2011
London – May 18, 2011

At special presentations to be held in Paris, Amsterdam and London as part of the EDHEC-Risk Institute/AXA Investment Managers research chair on Regulation and Institutional Investment, Samuel Sender, Applied Research Manager at EDHEC-Risk Institute, will present a major study conducted by EDHEC-Risk Institute analysing how pension funds and sponsors manage the main risks they face and how institutional constraints influence the investment strategy of sponsors and pension funds.

Samuel Sender will detail the results of an exclusive survey which finds that the institutional setup has a great influence on the risk management practices of sponsors and pension funds and that it contributes to inefficiencies in the management of risks. On the whole, accounting risk is an important risk for sponsors, and sponsor risk is the main risk for traditional defined-benefit pension funds. These two risks are often not hedged or managed because doing so is not facilitated by the institutional setup—laws, social, accounting, and prudential rules, as well as the pension insurance schemes and governance rules that define the organisation of pension plans.

For further information about the presentations, please contact severine.anjubault@edhec-risk.com.

About AXA Investment Managers

AXA Investment Managers is an active asset manager fully owned and backed by the AXA Group, a world leader in financial protection. With 516^* billion euros under management, AXA IM is ranked 14th amongst the top 100 asset managers worldwide,^** and employs more than 2,400 employees operating in 23 countries worldwide. It is acknowledged as a thought leader and key player in the asset management industry owing to its innovative and entrepreneurial mindset, the recognised excellence of its research, and the quality of its investment solutions and services. AXA IM services the specific, evolving needs and expectations of a wide variety of clients, ranging from the AXA Group and its insurance companies, to distributors—wholesale and retail—, and institutional investors—pension funds, insurance companies, corporates, non-profits, family offices and sovereign wealth funds.

AXA IM’s multi-expert business model, composed of seven single asset-class-driven teams of investment experts and one Investment Solutions team, enables it to benefit from the strength and stability that characterise a large, global organisation while maintaining the agility and flexibility of smaller businesses. This multi-expertise also enables it to offer the most relevant products across all major asset classes and alpha strategies whatever the market cycle. The model includes the following empowered and specialised teams of experts:
• AXA Fixed Income
• AXA Framlington
• AXA Rosenberg
• AXA Funds of Hedge Funds
• AXA Private Equity, AXA Real Estate
• AXA Structured Finance

These teams of experts are backed by the strength and scalability of shared support functions such as Research & Investment Strategy, Responsible Investment, Risk Management or Trading. And their product offerings form the bricks with which the Investment Solutions team builds the most adapted, fit-for-purpose solutions which meet the highest industry standards.

^*As of Dec. 2010
^**As of Sept. 2010

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