Management

Managing Investment Risk in Defined Benefit Pension Funds

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Managing investment risk in defined benefit pension funds
This paper inquires into the forces that drive the practice of risk management at defined benefit (DB)
pension funds in Germany, Netherlands, United Kingdom and the United States in the aftermath of the
perfect pension storm. First, pension funds‘ risk management is grounded in the context of the
development of modern risk management in the financial industry more general. Second, focusing solely
on single-employer sponsored DB pension funds this research critically examines the impact of recent
changes in the regulatory and accounting environment for pension funds and their sponsors thereby
explicitly taking into account the specific governance context in which pension funds are situated. The aim
of this research is, first, to provide a better understanding of the investment risk management of DB
pension funds thereby contributing to the theory of financial decision-making. Second, by conducting this
analysis on a cross-country basis, this research aims at contributing to the comparative analysis of pension
funds. This paper argues that the risk-taking capacity is a central element of DB pension funds. The
empirical results suggest that in general risk management has become much more sophisticated but that it
is often driven more by regulatory and accounting issues than by the pension fund‘s specific risk profile.
Furthermore, changes to the regulatory and accounting standards increasingly impede the risk-taking
capacity of DB pension funds. This research draws

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English

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NONE

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