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
How Strong Brands Translate into Money
15.11.2016 | Kühne Logistics University - Wissenschaftliche Hochschule für Logistik und Unternehmensführung
Demographic change depresses tax revenues
04.11.2016 | Fraunhofer-Institut für Angewandte Informationstechnik FIT
A multi-institutional research collaboration has created a novel approach for fabricating three-dimensional micro-optics through the shape-defined formation of porous silicon (PSi), with broad impacts in integrated optoelectronics, imaging, and photovoltaics.
Working with colleagues at Stanford and The Dow Chemical Company, researchers at the University of Illinois at Urbana-Champaign fabricated 3-D birefringent...
In experiments with magnetic atoms conducted at extremely low temperatures, scientists have demonstrated a unique phase of matter: The atoms form a new type of quantum liquid or quantum droplet state. These so called quantum droplets may preserve their form in absence of external confinement because of quantum effects. The joint team of experimental physicists from Innsbruck and theoretical physicists from Hannover report on their findings in the journal Physical Review X.
“Our Quantum droplets are in the gas phase but they still drop like a rock,” explains experimental physicist Francesca Ferlaino when talking about the...
The Max Planck Institute for Physics (MPP) is opening up a new research field. A workshop from November 21 - 22, 2016 will mark the start of activities for an innovative axion experiment. Axions are still only purely hypothetical particles. Their detection could solve two fundamental problems in particle physics: What dark matter consists of and why it has not yet been possible to directly observe a CP violation for the strong interaction.
The “MADMAX” project is the MPP’s commitment to axion research. Axions are so far only a theoretical prediction and are difficult to detect: on the one hand,...
Broadband rotational spectroscopy unravels structural reshaping of isolated molecules in the gas phase to accommodate water
In two recent publications in the Journal of Chemical Physics and in the Journal of Physical Chemistry Letters, researchers around Melanie Schnell from the Max...
The efficiency of power electronic systems is not solely dependent on electrical efficiency but also on weight, for example, in mobile systems. When the weight of relevant components and devices in airplanes, for instance, is reduced, fuel savings can be achieved and correspondingly greenhouse gas emissions decreased. New materials and components based on gallium nitride (GaN) can help to reduce weight and increase the efficiency. With these new materials, power electronic switches can be operated at higher switching frequency, resulting in higher power density and lower material costs.
Researchers at the Fraunhofer Institute for Solar Energy Systems ISE together with partners have investigated how these materials can be used to make power...
16.11.2016 | Event News
01.11.2016 | Event News
14.10.2016 | Event News
02.12.2016 | Medical Engineering
02.12.2016 | Agricultural and Forestry Science
02.12.2016 | Physics and Astronomy