Moody’s Analytics helps stakeholders in defined benefit pension management measure market risk exposure, allowing for investment strategy, funding strategy, and liabilities. We also enable pension managers to design investment strategies and investigate funding solutions to secure scheme objectives.
Investment advisers are challenged to help pension fund trustees and corporate sponsors achieve their investment objectives in the face of economic uncertainty and volatile markets. Understanding risk exposures, and how they are rewarded, enables advisers to formulate asset allocation and funding strategies that together deliver the best financial outcomes.
Providers, such as asset managers and advisers, must demonstrate how their offerings make cost effective contributions to the realization of investment objectives. This solution helps them meet these challenges, including strategic asset allocations; journey plan design, leading to self-sufficiency or buy-out readiness; and investigating liability-driven investments for large, complex schemes.
This supports the range of assets and economic risk drivers provided by the Economic Scenario Generator. It helps model alternative assets, including hedge funds and private equity funds, in addition to traditional assets, such as equities, bonds, credit, and property, and it enables stress tests of model tails and sensitivity analyses.
Strategy Comparison and Planning
Projecting positions on multiple, different candidate investment strategies and comparing outcome metrics, such as funding level, help identify the best investment strategies. Optimal recovery plans can be identified by varying the contribution schedules with a stated investment strategy. Design of a journey plan to full funding uses the rebalancing functionality. Funding level triggers allow the scheme to de-risk, switching out of return-seeking assets into matching assets as the funding level improves. Interest rate and inflation triggers with pooled swaptions and other derivative instruments can be used to design a hedging overlay that progressively removes interest rate and inflation risk as economic conditions improve.
Capturing Scheme Liabilities
Liabilities can be modeled to the tranche-level, capturing the range of increase types across classes of scheme membership. Liability models support fixed, inflation-linked, and limited price indexation style liabilities, and liability tranches with distinct pre and post-retirement increase types. Liabilities can be valued based on various curves, including government, credit, and swap with support for different pre and post-retirement valuation bases. Accruals can be modeled separately for each active tranche, enabling the capture of tranche-specific characteristics, such as post-retirement increase type. Modeling of multiple schemes is supported simultaneously, set up in the home currency and aggregated in the sponsor’s currency of choice.
Defined-Benefit ALM measures the market risk exposure of pension schemes allowing for the specifics of scheme liabilities and investment and funding strategies.
Pension Risk Analytics measures market-risk exposure of pension schemes, allowing for specifics of scheme liabilities and investment and funding strategies.