Evaluating and Managing Market Risk for a Pension Fund Portfolio

As the lead portfolio manager of a large institutional firm, you have been tasked with reassessing the risk management strategies employed across several portfolios that have recently exhibited high levels of volatility. Your client, a large pension fund, has expressed concerns about potential market downturns and the impact on their portfolio's funding status. They have invested significantly in equities, particularly in growth sectors, which are now facing headwinds due to rising interest rates and economic uncertainty.

Please evaluate the current market risk exposure of the pension fund's portfolio by analyzing the following:

1. Identify and discuss the specific market risk factors contributing to the increased volatility in the equities market.
2. Propose a risk management strategy tailored to mitigate these market risks, including both quantitative and qualitative measures.
3. Describe how you would implement this strategy and monitor its effectiveness over time, including an assessment of the implications of changing market conditions on the risk profile of the portfolio.