The Intersection of Pensions and Enterprise Risk Management
Session 1 - Recent developments in pension finance and actuarial science
11.30 - 12.30 Lecture I.3 Jeremy Gold (Jeremy Gold Pensions)
Abstract: For most of the last forty years, corporate defined benefit pension plan assets have been managed to balance risk versus reward in more or less the same way that a risk averse individual would do with his own portfolio. Recently liability cognizant strategies have been developed, but these also attempt to balance risks and rewards.
But pension plans are not individuals; they, much like their widely-held corporate sponsors, are pass-through institutions. The economics of such entities are found in the corporate finance literature rather than in the literature of portfolio choice. The corporate finance (and thus the pension finance) objective is economic value added rather than return for risk.
Enterprise risk management is a corporate finance activity too and its goal should also be value added rather than return for risk. The intersection of enterprise risk management and pension finance leads to a value-based discipline with two startling results:
- Widely-held corporations can increase shareholder value by hedging away their own systematic risk (e.g., CAPM beta).
- Very many corporate defined benefit pension plans should define their liabilities and manage their assets to develop a net short equity exposure (negative beta).
Abstracts
- Lecture I.1 - Luis Viceira
- Lecture I.2 - Jon Exley
- Lecture I.3 - Jeremy Gold
- Lecture II.1 - Raimond Maurer
- Lecture II.2 - Matthias Weiss
- Lecture II.3 - David Blake
- Lecture III.1 - Richard Hinz
- Lecture III.2 - Keith Ambachtsheer
- Lecture III.3 - Zvi Bodie
- Lecture III.4 - Lans Bovenberg
- Key note speech - Lucas Papademos
