Defining risk appetite
Incorporating alternative assets and empirical returns
Defined benefit occupational pension schemes usually target a funding ratio. This funding ratio is a function of risk appetite, but:
- How do you define the risk appetite?
- How the sponsor's financial health affects risk appetite?
- What role risk appetite plays in buyout discussions?
Investing in quantitative trading strategies funds
Quantitative trading funds claim they can achieve superior returns by removing the human factor from the investment process, but:
- how do you separate the noise from the signal for quantitative trading funds?
- how do you make sure that the quantitative trading fund's strategy is not just a replicating portfolio of major asset classes?
- what are the implicit assumptions that the quantitative trading fund makes which are critical to future returns?
On an ALM context alternative assets sometimes are considered the holy grail but a number of challenges exist such as:
- How to specify when alternative assets add alpha and when their excess returns are just liquidity premia?
- How to take into account the non normality of some alternative assets when we incorporate them in an optimal asset allocation?
Matching assets and liabilities
Matching assets to pension liabilities usually requires the plugging of the funding gap as well as answers to questions such as:
- When is the right time to match?
- What is the opportunity cost of delaying matching assets to liabilities?
- On a matched fund what provisions we need to make for basis risk?