Understanding the factors that support or weaken a pension fund’s funding ratio is important since it forms the basis of crucial policy decisions including the allocation to risk sources in the investment portfolio. In part 1, we argued that funding ratio risk was an important metric and could produce valuable insights. In part 2, we argue that a more detailed grasp of the sources of economic risk could help the portfolio manager adjust the allocation as and when required.

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Pension funds: understanding funding ratio risk better (part 2)