Strategies for Addressing Pension Fund Funding Challenges

You are an investment consultant for a medium-sized pension fund that has recently encountered funding challenges due to lower-than-expected investment returns and rising liabilities. The fund’s asset allocation is heavily weighted toward traditional equities and fixed income but shows little exposure to alternative assets. The board of trustees is considering revising the current investment strategy to improve returns and better manage risk.

In your capacity as an advisor, outline a comprehensive approach to address the funding challenges faced by the pension fund. Discuss the potential benefits and drawbacks of diversifying the asset allocation to include alternative investments, revising the fund's risk tolerance, and implementing liability-driven investment strategies. Consider how these changes may impact the pension fund's overall objectives and stakeholder interests.