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

EDHEC has 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.”

Author(s):

Samuel Sender

Applied Research Manager - EDHEC-Risk Institute

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 themmodern ALM techniquesare assessed jointly.Among the key conclusions: Respondents agree that pension funds should take a long-term approach to investing, but they also think that they should manage their short-term constraints; they agree that risk management protects minimum funding ratios better than high funding ratios do, and as such they believe strongly that regulations should encourage risk managementfor instance, by allowing internal models.   Dutch pension funds, which have already implemented risk-based regulation with strict minimum funding ratios, are supportive of the idea that minimum funding ratios should be implemented, as these ratios foster risk management. British pension funds, by contrast, with their chronic underfunding, fear that minimum funding ratios would involve a counterproductive tightening of prudential regulation of pension funds.   Respondents also agree that the funding ratio of the pension fund is not, on its own, a sufficient indicator of the degree of protection afforded pension benefits: the risk to the benefits depends on the combined risk of underfunding and sponsor default. Respondents argue that the use of modern ALM techniques cannot fully ensure that a pension fund is never underfunded, not only because funding depends on the contribution policy but also because longevity risk has added significantly to liabilities.   As a consequence, a specific measurement of the combined risk of sponsor default and underfunding is required. Contributions must be raised or assets may be pledged by the sponsor when this combined risk arises.   Organisational problems keep pension funds from benefiting from dynamic investment strategies, even though these strategies are viewed with favour by both academics and practitioners: 73.2% of pension funds agree that dynamic strategies ensure that minimum funding constraints are met.

Type: EDHEC Publication
Date: le 05/11/2009
Research Cluster : Finance

See Also

Immersion at Station F for start-up challenge finalists !
News
- 13-10-2021
Devised for students with start-up projects on the Pre-Master and Master 1 years of the...
Financing your MBA - are you eligible for a scholarship?
News
- 12-10-2021
How to finance your Global MBA abroad is a critical question you need to think about...
Apprenticeship program: a perfect combination of academic knowledge and professional experience
News
- 12-10-2021
Yiqing Ma joined EDHEC Apprenticeship Track in 2019. She shares insights into the...
CRÉDIT AGRICOLE NORD DE FRANCE, AMUNDI AND CRÉDIT AGRICOLE CIB, PARTNERS OF EDHEC BUSINESS SCHOOL’S MSC IN CLIMATE CHANGE & SUSTAINABLE FINANCE
News
- 08-10-2021
Three major players in the Crédit Agricole Group operating in the banking and finance...