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Institutional Investment - September 23, 2010

Conclusions of recent EDHEC-Risk Institute survey of European pension funds' ALM practices reported in the Financial Times

In an article entitled "Pensions falling short on risk management", featured in the Financial Times on May 31 last, Samuel Sender, Applied Research Manager at EDHEC-Risk Institute, drew on the results of a recent EDHEC-Risk survey of the asset-liability management practices of European pension funds to conclude that most of the respondents had a restrictive view of the risks they face and should change their practices, notably by favouring rule-based risk management strategies over discretionary ones.

The survey of 129 asset-liability management specialists (pension funds, their advisers, regulators, and fund managers) representing assets under management of approximately €3 trillion, found that prudential risk (the risk of underfunding) is managed by only 40% of respondents, accounting risk (the volatility from the pension fund in the accounts of the sponsor) by 31% of respondents and that more than 50% of respondents ignore sponsor risk (the risk of a bankrupt sponsor’s leaving a pension fund with deficits). In addition, pension funds generally do not assess the adequacy of their ALM. Thirty percent of respondents do not assess the performance of the design of the performance-seeking portfolio, and more than 50% use crude outperformance measures. These failings may lead to sub-optimal decisions being taken again and again.

This exclusive survey, conducted as part of the AXA Investment Managers research chair on "Regulation and Institutional Investment" at EDHEC-Risk Institute, will be presented at the EDHEC-Risk Institutional Days in Monaco on December 9, 2010.

Prior to a roundtable discussion with Dirk Broeders, Supervisory Strategy, Dutch National Bank; Brendan Kennedy, Chair, CEIOPS Occupational Pensions Committee; and Günther Schiendl, Chief Investment Officer, VBV-Pensionskasse, Samuel Sender will summarise the results of the survey and also look at the some of the crucial issues currently facing pension funds:

  • Why more attention should be paid to accounting risk in sponsors’ accounts, as well as to sponsor risk at pension funds
  • Pension funds should favour rule-based strategies over discretionary ones: towards rule-based economic/regulatory capital?
The EDHEC-Risk Institutional Days 2010, taking place at the Grimaldi Forum in Monaco on December 8-9, will include two major conferences, two innovative seminars and several specialised research presentations:
  • Indexation and Passive Investment Conference
  • Global Institutional Investment Conference
  • Advanced Portfolio Construction Seminar
  • Private Wealth Management Seminar
  • PhD Forum
In 2010, EDHEC-Risk’s partnership with Investment & Pensions Europe will enable the institutional days to be held on the two days following the IPE Pension Fund Awards in Monaco, Europe’s largest gathering of pan-European pension funds, thus providing an exceptional opportunity for the awards ceremony attendees to take advantage of their visit to Monaco in order to bring themselves up-to-date with the latest developments in institutional investment research.

For further details on the event, please visit the following page.