Pension Fund Risk Management Strategies

Very Hard Institutional Portfolio Mgmt Pension Funds

As a portfolio manager for a large public pension fund, you are tasked with analyzing the current asset allocation and risk exposure of the fund's portfolio. The fund is facing increased scrutiny regarding its long-term solvency and ability to meet future pension obligations, particularly in light of changing demographics and economic conditions.

In your recent analysis, you discover that the pension fund's portfolio is heavily allocated towards traditional equity and bond markets, leaving it vulnerable to market fluctuations. You propose a strategic shift in the investment policy to better manage risks associated with longevity and investment return shortfalls.

You need to decide which of the following actions would most effectively mitigate these risks while considering the liquidity needs and the immediate investment horizon of the pension fund.

Increase allocations to alternative investments such as real estate and private equity, while maintaining a lower allocation to fixed income.

Implement a dynamic asset allocation strategy that adjusts the portfolio based on market conditions, maintaining a steady allocation to traditional asset classes.

Shift to a liability-driven investment approach, prioritizing bonds that closely match the timing and amount of expected pension payouts.

Hint

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