At first glance, it might be hard to see how an ancillary benefit like a pension can drive a company into bankruptcy; however, it can be a major risk in today’s business environment.
As the volatile and stressful year of 2011 draws to a close, it is time to take stock of our portfolios and consider some of the risks embedded in them.
Events surrounding the credit issues of European sovereigns such as Greece, Portugal and Italy dominate the news. The idea of a country declaring bankruptcy seems difficult for most people—especially Canadians—to comprehend. We may consider the benefits of Greek citizens, such as reports of taxi drivers retiring at age 53, to be egregious, but also wonder […]
We are in the midst of historic times, as sovereigns hang on the edge of default, the inflation/deflation debate remains unresolved and gold trades at a historic high. As a manager or director of a pension fund, this is a critical juncture to understand what can go wrong for your fund in particular scenarios. To […]
One of the potential solutions outlined for managing excessive risk concentration is the use of an overlay portfolio. Overlay portfolios are managed by the plan sponsor or by a third party, and can be used for tactical asset allocation or for hedging of risks incurred by an external manager to which the plan sponsor does […]
Portfolio measurement is usually performed by the calculation of returns. But returns alone do not describe the performance of a portfolio. It is essential to calculate portfolio risk in order to understand the degree of risk a portfolio manager takes in order to achieve those returns. In this article we will explore two different timings […]
Public and private defined benefit (DB) pension plans are struggling with how to manage the mismatch between assets and liabilities. In order to control the mismatch risk, many plans have either begun to implement or are exploring implementation of liability driven investing (LDI). It is ironic, however, that the greatest opposition to increased risk management […]
In November, several companies south of the border issued bonds and the proceeds of the sale were used to help fund pension deficits. These companies include such venerable names as United Parcel Service Inc (UPS), Dow Chemical Co. and Northrop Grumman Corp. Is such a strategy sound, given the potential outcomes? What are its risks? […]
There are many firms with exposure to long bond yields. Pension funds are known to have long bond exposure, with liabilities typically stretching out longer than 50 years and assets, which are invested in both fixed income and equities. Insurance companies certainly have exposure as their liabilities also extend longer than 50 years, although these […]
The global financial crisis has acted as a catalyst for many things—perhaps most importantly for pension funds, a renewed focus on risk. No longer does a lack of obvious correlation between assets presume protection, and the startlingly simple mantra “don’t buy what you don’t understand” has taken renewed prescience. However, the decision to increase efforts […]