Dynamic Investment Strategies for Corporate Pension Funds in the Presence of Sponsor Risk
The present publication is part of the BNP Paribas Investment Partners research chair at EDHEC-Risk Institute on “ALM and Institutional Investment Management”.
Professor of finance at EDHEC Business School and scientific director of EDHEC-Risk Institute.
Research Assistant at EDHEC-Risk Institute
The purpose of the present research publication is to go beyond simple forms of dynamic strategies, and to show that more sophisticated dynamic allocation strategies could usefully be implemented by pension funds. For instance, the paper shows that imposing a cap on the funding ratio, in addition to a floor, has a positive impact on both pensioners and bondholders, while only having a minor negative effect on equity value. The paper also introduces novel forms of dynamic strategies that recognise that pension risk is not only driven by the funding ratio of the pension fund, but also by the financial strength or weakness of the sponsor company. These strategies aim to control sponsor risk by avoiding states of the world where the pension fund is underfunded and the sponsor is unable to make up for the gap.
Dynamic Investment Strategies for Corporate Pension Funds in the Presence of Spo...
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