Regulation - October 23, 2009

Reactions to an EDHEC Study on the Impact of Regulatory Constraints on the ALM of Pension Funds

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.

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