Book contents
- Frontmatter
- Contents
- Figures
- Tables
- Contributors
- Abbreviations
- 1 Introduction
- 2 Regulatory and supervisory context for occupational pension provision
- 3 Pension funds and the capital markets
- 4 Social responsibility and fiduciary duties of trustees
- 5 Good trusteeship
- 6 Conflicts of interest
- 7 The pension scheme in the employment package
- 8 Employer support and the development of the sponsor covenant concept
- 9 Establishing the funding requirements of pension schemes
- 10 Effective oversight of pension administration
- 11 Investment governance of defined benefit pension funds
- 12 Hedging investment risk
- 13 Managing longevity risk
- 14 The role of insurance in the occupational pensions market
- 15 Pensions – a corporate perspective
- 16 A note on the investment management of defined contribution schemes
- 17 Effective investment governance in defined contribution schemes
- 18 Inside pension scheme governance
- Index
- References
12 - Hedging investment risk
Published online by Cambridge University Press: 05 July 2011
- Frontmatter
- Contents
- Figures
- Tables
- Contributors
- Abbreviations
- 1 Introduction
- 2 Regulatory and supervisory context for occupational pension provision
- 3 Pension funds and the capital markets
- 4 Social responsibility and fiduciary duties of trustees
- 5 Good trusteeship
- 6 Conflicts of interest
- 7 The pension scheme in the employment package
- 8 Employer support and the development of the sponsor covenant concept
- 9 Establishing the funding requirements of pension schemes
- 10 Effective oversight of pension administration
- 11 Investment governance of defined benefit pension funds
- 12 Hedging investment risk
- 13 Managing longevity risk
- 14 The role of insurance in the occupational pensions market
- 15 Pensions – a corporate perspective
- 16 A note on the investment management of defined contribution schemes
- 17 Effective investment governance in defined contribution schemes
- 18 Inside pension scheme governance
- Index
- References
Summary
Risk
The starting point for hedging investment risk in a pension scheme is the requirement to understand and manage the drivers of risk.
Firstly, it is crucial to understand those market factors that will exacerbate or reduce the deficit. Secondly, it is vital to manage the impact of those factors as far as possible.
A defined benefit pension scheme is behaviourally extremely complex. In the first place, the various assets held by the scheme have characteristics that can be very distinct: a building owned by the pension scheme behaves differently (in terms of fair value) from a portfolio of equities. A basket of index-linked gilts does not exhibit the same properties as a macro hedge fund or a holding of asset-backed securities. Even within asset classes, different individual assets have distinct characteristics.
- Type
- Chapter
- Information
- Good Governance for Pension Schemes , pp. 187 - 206Publisher: Cambridge University PressPrint publication year: 2011