Financial risk management for pension plans in times of the Coronavirus

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The outbreak of the Coronavirus has resulted in financial, economic and health risks globally. Subsequent financial market uncertainty has meant sharply negative stock price movements, significant jumps in credit spreads, illiquidity and increased interest rate volatility are now a part of everyday life.

This has profound implications for institutional investors worldwide, as pension funds are confronted with lower funding levels and breached allocation bandwidths and risk limits. To partially mitigate this, Governments and Central Banks have intervened in an attempt to dampen the negative economic impact of the outbreak.

Since the previous financial crisis, much more emphasis has been placed on strategic risk management in the Pension Industry. Whether or not these efforts pay off in this crisis, remains to be seen. In this article we discuss what we see as the main challenges for the strategy and risk teams at pension funds and provide some suggestions on how best to approach this unique situation.

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