BUDGETING AND MONITORING PENSION FUND RISK推荐.pdfVIP

CHAPTER 49 BUDGETING AND MONITORING PENSION FUND RISK∗ William F. Sharpe This article describes a set of mean– variance procedures for setting targets for the risk characteristics of components of a pension fund portfolio and for monitoring the portfolio over time to detect signifi cant deviations from those targets. Because of the signifi cant correlations of the returns provided by the managers of a typical defi ned - benefi t pension fund, the risk of the portfolio cannot be characterized as simply the sum of the risks of the individual components. Expected returns, however, can be so characterized. I show that the relationship between marginal risks and implied expected excess returns provides the economic rationale for the risk budgeting and monitoring being implemented by a num- ber of pension funds. I then show how a fund ’ s liabilities can be taken into account to make the analysis consistent with goals assumed in asset/liability studies. I also discuss the use of factor models and aggregation and disaggregation procedures. The article concludes with a short discussion of practical issues that should be addressed when implementing a pension fund risk - budgeting and - monitoring system. Institutional investment portfolios are composed of individual investment vehicles that are gen- erally run by individual managers. And traditionally, each of the components of a portfolio is an asset whose future value cannot fall below zero. In this environment, the total monetary value of the portfolio is typically considered an overall budget to be allocated among investments. In a formal portfolio model, the decision variables are the proportions of total portfolio value allocated to the available investm