Evaluating JKL Pension Fund's Strategy Amid Rising Rates

Consider the situation of JKL Pension Fund, a large defined benefit plan with obligations to its beneficiaries extending over several decades. The fund is currently under pressure from rising interest rates and increased longevity risk among its retirees. As part of its investment strategy, JKL Pension Fund is evaluating the feasibility of a flexible duration strategy combined with alternative investments to enhance returns.

The fund's governance structure is robust, emphasizing transparency and fiduciary responsibility. The board is deliberating on how to best align its asset allocation with its liability profile while effectively managing investment risks. Specifically, they are discussing the potential introduction of a risk allocation framework and the impact of using derivatives for duration management.