Forum for Science, Industry and Business

Sponsored by:     3M 
Search our Site:


EDHEC Survey of the Asset and Liability Management Practices of European Pension Funds

EDHEC recently 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. Pension funds and their sponsors account for approximately €0.9 trillion.

This survey has been taken as part of the second year of the AXA Investment Managers "Regulation and Institutional Investment" research chair at EDHEC-Risk Institute. The objective of this research chair is to increase institutional investors' awareness not only of the challenges posed to financial management by regulatory developments but also of research advances in asset management and asset/liability management (ALM) that enable them to meet these new regulatory challenges.

The results of this pan-European survey suggest that, despite the professionalisation of ALM in pension funds and their service providers, risk-controlled strategies may not have been taken up widely enough. That these strategies are understood by only half of respondents may account, in part, for the lack of widespread adoption.

The recent underfunding of sophisticated pension funds suggests that there are biases that prevent many pension funds from managing their assets optimally. In theory, rule-based risk-controlled investing and discretionary economic capital should lead to the same insurance of risks. One of the theoretical drawbacks of economic capital is that it is a myopic strategy. A practical drawback is that the reliance on discretionary investment policies involves the risk of delays and of behavioural biases that distort the theoretical strategy (pension funds may be reluctant to sell at a loss, even though they rely essentially on market values and should, in theory, pay no attention to book values). In general, because rule-based strategies are compatible with economic capital and prudential risk-based regulations, we recommend more reliance on these strategies. Very simple and intuitive methods that require little or no mathematical background can prove to be efficient means of insuring risks.

The survey also suggests that pension funds have a blinkered vision of risks; only a minority, for instance, manage accounting risk and sponsor risk. The reluctance to manage their risks exhaustively can be seen as increasing risk to no purpose and may also lead to inappropriate volatility in the sponsor’s books.

The survey suggests, finally, that pension funds make insufficient efforts to measure the performance of their portfolios and to assess the suitability of the design of their strategies.

Joanne Finlay | EDHEC Research Highlights
Further information:

More articles from Business and Finance:

nachricht Blockchain Set to Transform the Financial Services Market
28.09.2016 | HHL Leipzig Graduate School of Management

nachricht Paper or plastic?
08.07.2016 | University of Toronto

All articles from Business and Finance >>>

The most recent press releases about innovation >>>

Die letzten 5 Focus-News des innovations-reports im Überblick:

Im Focus: Etching Microstructures with Lasers

Ultrafast lasers have introduced new possibilities in engraving ultrafine structures, and scientists are now also investigating how to use them to etch microstructures into thin glass. There are possible applications in analytics (lab on a chip) and especially in electronics and the consumer sector, where great interest has been shown.

This new method was born of a surprising phenomenon: irradiating glass in a particular way with an ultrafast laser has the effect of making the glass up to a...

Im Focus: Light-driven atomic rotations excite magnetic waves

Terahertz excitation of selected crystal vibrations leads to an effective magnetic field that drives coherent spin motion

Controlling functional properties by light is one of the grand goals in modern condensed matter physics and materials science. A new study now demonstrates how...

Im Focus: New 3-D wiring technique brings scalable quantum computers closer to reality

Researchers from the Institute for Quantum Computing (IQC) at the University of Waterloo led the development of a new extensible wiring technique capable of controlling superconducting quantum bits, representing a significant step towards to the realization of a scalable quantum computer.

"The quantum socket is a wiring method that uses three-dimensional wires based on spring-loaded pins to address individual qubits," said Jeremy Béjanin, a PhD...

Im Focus: Scientists develop a semiconductor nanocomposite material that moves in response to light

In a paper in Scientific Reports, a research team at Worcester Polytechnic Institute describes a novel light-activated phenomenon that could become the basis for applications as diverse as microscopic robotic grippers and more efficient solar cells.

A research team at Worcester Polytechnic Institute (WPI) has developed a revolutionary, light-activated semiconductor nanocomposite material that can be used...

Im Focus: Diamonds aren't forever: Sandia, Harvard team create first quantum computer bridge

By forcefully embedding two silicon atoms in a diamond matrix, Sandia researchers have demonstrated for the first time on a single chip all the components needed to create a quantum bridge to link quantum computers together.

"People have already built small quantum computers," says Sandia researcher Ryan Camacho. "Maybe the first useful one won't be a single giant quantum computer...

All Focus news of the innovation-report >>>



Event News

#IC2S2: When Social Science meets Computer Science - GESIS will host the IC2S2 conference 2017

14.10.2016 | Event News

Agricultural Trade Developments and Potentials in Central Asia and the South Caucasus

14.10.2016 | Event News

World Health Summit – Day Three: A Call to Action

12.10.2016 | Event News

Latest News

Ice shelf vibrations cause unusual waves in Antarctic atmosphere

25.10.2016 | Earth Sciences

Fluorescent holography: Upending the world of biological imaging

25.10.2016 | Power and Electrical Engineering

Etching Microstructures with Lasers

25.10.2016 | Process Engineering

More VideoLinks >>>