State Street Global Advisors Report Offers Guidance to Pension Funds Seeking to Recognize and Manage Risk
February 21 2012 - 1:21PM
Business Wire
State Street Global Advisors (SSgA), the investment management
business of State Street Corporation (NYSE:STT), says that managing
for a total outcome rather than focusing on the returns of
individual strategies or asset classes is key to solving the
risk/reward dilemma faced by many underfunded pension funds. In a
recent paper, “Managing Pension Risk: Confront Your Risk/Reward
Dilemma” 1 SSgA offers actionable insights for pension managers and
investment committees and boards of pension plans, foundations, and
endowments seeking different perspectives on how to strategically
and dynamically manage pension risk.
SSgA notes that investors’ ability to recognize and manage risk
has been tested in the face of market volatility and a shifting
regulatory landscape. New accounting rules that have emphasized
greater transparency, the Pension Protection Act of 2006 which put
more emphasis on the asset/liability mismatch, and increased
capital market risk have caused pension managers to struggle with
remaining properly funded, match assets to liabilities, and manage
contribution increases.
“The environment that we’ve been in recently has presented
increased challenges for pension managers and as a result, we
believe there has to be an even greater emphasis on understanding
risks across the portfolio and then managing those risks
dynamically over time,” said Dan Farley, senior managing director
of SSgA and chief investment officer of SSgA’s Investment Solutions
Group. “We are working with plan sponsors to first understand the
total portfolio situation, and help structure distinct growth and
hedging portfolios to address the plan’s risk/return
parameters.”
In the paper, SSgA outlines its four beliefs for successfully
managing pension risk:
- Clear understanding of an institution’s
pension liabilities and where a plan may be at risk
- A focus on the outcome; shifting from
making strategy and asset allocation decisions based on asset
return only, balancing the need for return with managing specific
risk factors
- Unique portfolio designs tailored to
each plan’s situation
1 “Managing Pension Risk: Confront Your Risk/Reward Dilemma” is
part of an SSgA campaign dedicated to managing pension risk. For
more information, visit http://www.ssga.com/webapp/pensionrisk/
Thoughtful risk budgeting that takes into consideration risks
that may be rewarded as well as risks aligned with funding
status
According to Farley, SSgA’s unique, holistic approach offers
pension risk solutions across the key areas: reducing equity
volatility, developing strategies for non-correlated returns,
identifying solutions for optimizing income, and managing liability
exposure. “Employing a needs-based framework to portfolio
construction, our approach is designed to optimize growth portfolio
assets, actively manage portfolio risk and manage the plan’s
funding ratio volatility,” said Farley.
SSgA’s Investment Solutions Group is a dedicated team of more
than 50 investment professionals operating in major investment
centers around the world. The team specializes in managing and
advising investors on asset allocation, risk management, portfolio
construction and plan implementation, developing customized
solutions tailored to specific needs. Together with expertise from
across SSgA, the Investment Solutions Group collaborates with
clients in strategic relationships that are designed to solve their
most pressing investment challenges.
About State Street Global Advisors
State Street Global Advisors (SSgA) is a global leader in asset
management. The firm is relied upon by sophisticated investors
worldwide for its disciplined investment process, powerful global
investment platform and access to every major asset class,
capitalization range and style. SSgA is the asset management
business of State Street, one of the world's leading providers of
financial services to institutional investors.
The views expressed in this material are the views of SSgA’s
Investment Solutions Group through the period ended January 31,
2012, and are subject to change based on market and other
conditions. This document contains certain statements that may be
deemed forward-looking statements. Please note that any such
statements are not guarantees of any future performance and actual
results or developments may differ materially from those
projected.
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