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Chief Investment Officer | NEWS April 2018

Lack of Hedging Threatens Pensions Recent Improvements

Discussing highlights of Cambridge Associates’ Liability-Hedging Handbook: A Guide to Best Practices for US Pension Plans,  co-author Alex Pekker explains, “Until recently, closing that asset liability gap has rightly been the primary focus, and now since the funded status has improved for most plans, the balance should be shifting to the liability-hedging portfolio.”

The report warns that despite having steadily boosted their funding levels over the past year, US pension funds run the risk of losing their improved status if they don’t hedge their liabilities.

Pekker says that although striving for fully funded status is a laudable goal, plan sponsors should consider revisiting their investment strategy to develop a more nuanced approach to liability management to protect their gains: curve risk, credit spread risk, and operational complexity risk.

Read the detailed article here.

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