Target Total Outcome Over Individual Strategies or Asset Classes

22 February 2012 (PLANSPONSOREurope.com) - Managing for a total outcome rather than focusing on the returns of individual strategies or asset classes is key to solving the risk/reward dilemma faced by many underfunded pension funds, according to State Street Global Advisors (SSgA).

In a recent paper, SSgA claims that investors’ ability to recognise and manage risk has been tested in the face of market volatility and a shifting regulatory landscape.  The Pension Protection Act of 2006 has placed more emphasis on the asset/liability mismatch, and increased capital market risk have caused pension managers to struggle with remaining properly funded, match assets to liabilities, and manage contribution increases.

Dan Farley, senior managing director of SSgA and chief investment officer of SSgA’s Investment Solutions Group says: “The environment that we’ve been in recently has presented increased challenges for pension managers and as a result, we believe there has to be an even greater emphasis on understanding risks across the portfolio and then managing those risks dynamically over time.”

The paper outlines SSgA’s four beliefs for successfully managing pension risk:

• Clear understanding of an institution’s pension liabilities and where a plan may be at risk
• A focus on the outcome; shifting from making strategy and asset allocation decisions based on asset return only, balancing the need for return with managing specific risk factors
• Unique portfolio designs tailored to each plan’s situation
 

PLANSPONSOREurope Staff
editors@plansponsoreurope.com