Pension Fund Boards Lack Knowledge on Risk, Says Survey

A new State Street survey finds that a third of pension professionals think their fund should increase risk-taking to boost returns.

But less than half of those professionals thought their boards had sophisticated knowledge of investment risk.

From ai-cio.com:

More than a third (36%) of 400 pension professionals from around the world surveyed by the investor services giant said their funds had funding issues requiring greater risk-taking. However, of those people, less than half (43%) said their boards had a “high level of understanding of risks” to their funds. Just 29% of those whose funds were seeking to lower risk said their boards had sophisticated expertise.

“We examined pension funds’ capabilities across four distinct types of risk: investment, liquidity, longevity, and operational risk,” State Street wrote. “For each of these areas, only one-fifth of funds at most consider their risk management to be very effective.”

Large funds were generally better at risk management than small funds, the survey found, while public funds were better than their private sector counterparts.

[…]

A significant proportion of respondents said their employers planned to change the process for recruiting new board members in order to improve their expertise. More than half (53%) of those funds seeking to increase portfolio risk said this was the case.

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