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Entity-wide Risk Management for Pension Funds
This presentation
- explores the application of Enterprise Risk Management (ERM) to pension funds
- highlights developments in the EU that may encourage greater application of ERM to pension funds
- summarises a way of modelling one aspect of ERM relevant to many pension funds, namely the contribution that the 'sponsor covenant' might make to the robustness of the pension promise being provided via the pension fund.
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Slides
1
Entity-wide Risk Management for Pension Funds
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Agenda
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Agenda
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Definitions of Enterprise Risk Management (ERM)
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Definition of ERM in flowchart form
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‘Enterprise’ versus ‘Entity-Wide’ Risk Management
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ERM versus other types of risk management
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Three pillar structure of modern regulatory frameworks
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Effective entity-wide risk management for pension funds
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Clarity / transparency and coverage
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Some say: ERM is for insurance, not pensions
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Characteristics of successful ERM frameworks
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Typical ERM framework for large financial firm might include
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Typical ERM framework for a non-financial firm
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Governance challenges for pension funds include
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Agenda
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IORP II Directive Proposal
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Typical balance sheet presentations
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Security mechanisms
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Agenda
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Analysing the sponsor covenant: a first step
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Ideally need a forward-looking analysis
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Valuation of sponsor covenant
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Maximum available sponsor support
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Presentation of results
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Pension protection schemes (PPS)
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Summary
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APPENDIX A: Pension fund security mechanisms
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Tangible assets
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Sponsor covenant
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Conditional benefit structures
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Conditional benefit structures (ctd)
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Pension protection schemes (PPSs)
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Appendix B: Modelling example
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Model structure
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Including asset volatility in model
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Quantifying value split between sponsor and members
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Important Information
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