2013 Callan Risk Management Survey
Content
CALLAN INVESTMENTS INSTITUTE
Survey
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2013 Risk Management Survey Risk Management in a New Light
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Table of Contents
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Executive Summary Summary Respondent Characteristics Characteristics
2 3
Are Risk Management Tools Effective? Effective?
4
External Inuences Inuences
5
Reactions to the 2008 Market Crisis Crisis
6
Policy-Level Considerations Considerations
7
Strategy-Level Considerations Considerations
8
Formally Addressing Risk Management Management
9
Risk Management Stafng Stafng
12
Consultants Consultants
13
Risk Measurement Measurement
14
Risk Management Reports Reports
17
Reviewing and Communicating Risk Management Findings Findings
18
Taking Action Action
19
Risk-Based Tactical Moves Moves
20
Knowledge. Knowledg e. Experience. Integrity.
2013 Risk Management Survey
1
Executive Summary
The 2008 market crisis put risk in the spotlight and prompted fund duciaries to l ook at risk management in a new light. Callan elded this survey in November 2012, and the results incorporate responses from 53 fund sponsors representing $576 billion in assets. The vast majority of this group has taken concrete steps in the past ve years to address investment risks. More than half (55%) believe their risk management tools are effective at miti gating investment risk, but 14% see these systems as simply a means to improve risk identication and monitoring. The jury is still out for one-third of respondents, as their tools are relatively new and untested in a true market crisis. Other key ndings of our survey include: • Public and corporate funds are embracing policy-level approaches to risk management more so than endowments/ foundations. Public funds have implemented economic regime asset allocations, risk parity, and risk factor-based asset allocation, while corporate funds favor liability-driven investing and funded status-based glide path de-risking. • Strategy-level approaches to mitigate risk are easier to implement than those that alter the fund’s overall investment policy, and we observed higher levels of adoption for strategy changes across fund types. Public funds and endowments/
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foundations are most heavily implementing or considering real assets, opportunistic xed income, absolute return, and long/short equity. Corporate funds are also embracing absolute return, but long duration is the most favored strategy-level approach used to address risk. • Most funds (94%) do not have a formal risk budget, but rather explicitly address risk management in their plan governance via asset allocation, investment objectives, and disciplined rebalancing. • Formal risk management processes are most prevalent at large funds, although around half of medium and small funds have adopted one or are considering doing so this year. Funds implementing a formal risk management process generally aim to gain a better understanding of the risks taken, monitor them, and document them.
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• Forty-two percent of all respondents employ proprietary and/or third-party risk measurement tools, such as software or data services. Usage of third-party tools is most prevalent at public funds, while endowments/foundations are the greatest adopters of in-house (proprietary) tools.
Marketing
• The investment committee is the body most regularly tasked with deciding when to take action based on the ndings of risk management tools. The most common actions taken were asset allocation changes (64% of respondents), manager due
Personalization
diligence/search (56%), and increased manager monitoring (52%). A full 20% of respondents had not yet taken any actions
Analytics
based on risk management ndings. • Many fund sponsors wrestle with whether or not to tactically manage plan risk. Only 30% of sponsors have made
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rebalancing decisions (including but not limited to tactical rebalancing) based on risk management ndings. Of those that have not done so, most (82%) do not plan to in the future. Public (31%) and large (25%) funds are most likely to use tactical implementations going forward.
Knowledge. Knowledg e. Experience. Integrity.
2013 Risk Management Survey
Respondent Characteristics
Callan conducted the Risk Management survey in Novem-
Respondents by Fund Typ Type e
ber 2012. Results incorporate responses from 53 fund sponsor organizations representing $576 billion in assets (as of June 30, 2012). Of those that measure funded status (79% of respondents), the average funded status was 75% within a range of 28% to 100%. More than one-third of respondents
Other 6% Endowment/ Foundation 17% Foundation
(37%) were Callan clients at the time they responded. The majority of respondents (51%) are public funds, and cor-
Public
Taft-Hartley 5% Taft-Hartley
51%
porate funds make up 21%. The remaining respondents are Corporate
endowments/foundations endowments/founda tions (17%), Taft-Hartley plans (5%), or
21%
other types of organizations (including charitable trusts and other types of tax-exempt plans).
This website stores data such as cookies to enable essential site The respondent pool is split by fund size into roughly three functionality, as than well$1asbillion marketing, parts: small funds (less in assets) make up personalization, and analytics. Youmake up 30%, medium funds (between $1 and $5 billion) may your settings any timethan 32%, andchange the remaining 38% are large at funds (greater $5or billion). accept the default settings.
Respondents by Fund Size Small Funds
Medium Funds
Large Funds
Privacy Policy >$15 billion
21%
<$500 million
19%
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$5 billion to $15 billion
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$500 million to $1 billion 11% 17%
$1 billion to $5 billion
32%
2
Knowledge. Knowledg e. Experience. Integrity.
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2013 Risk Management Survey
3
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Survey
This website stores data such as cookies to enable essential site functionality, as well as marketing, personalization, and analytics. You may change your settings at any time or accept the default settings.
2013 Risk Management Survey Risk Management in a New Light
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This website stores data such as cookies to enable essential site functionality, as well as marketing, personalization, and analytics. You may change your settings at any time or accept the default settings.
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Table of Contents
This website stores data such as cookies to enable essential site functionality, as well as marketing, personalization, and analytics. You may change your settings at any time or accept the default settings.
Privacy Policy Marketing Personalization Analytics Save
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Executive Summary Summary Respondent Characteristics Characteristics
2 3
Are Risk Management Tools Effective? Effective?
4
External Inuences Inuences
5
Reactions to the 2008 Market Crisis Crisis
6
Policy-Level Considerations Considerations
7
Strategy-Level Considerations Considerations
8
Formally Addressing Risk Management Management
9
Risk Management Stafng Stafng
12
Consultants Consultants
13
Risk Measurement Measurement
14
Risk Management Reports Reports
17
Reviewing and Communicating Risk Management Findings Findings
18
Taking Action Action
19
Risk-Based Tactical Moves Moves
20
Knowledge. Knowledg e. Experience. Integrity.
2013 Risk Management Survey
1
Executive Summary
The 2008 market crisis put risk in the spotlight and prompted fund duciaries to l ook at risk management in a new light. Callan elded this survey in November 2012, and the results incorporate responses from 53 fund sponsors representing $576 billion in assets. The vast majority of this group has taken concrete steps in the past ve years to address investment risks. More than half (55%) believe their risk management tools are effective at miti gating investment risk, but 14% see these systems as simply a means to improve risk identication and monitoring. The jury is still out for one-third of respondents, as their tools are relatively new and untested in a true market crisis. Other key ndings of our survey include: • Public and corporate funds are embracing policy-level approaches to risk management more so than endowments/ foundations. Public funds have implemented economic regime asset allocations, risk parity, and risk factor-based asset allocation, while corporate funds favor liability-driven investing and funded status-based glide path de-risking. • Strategy-level approaches to mitigate risk are easier to implement than those that alter the fund’s overall investment policy, and we observed higher levels of adoption for strategy changes across fund types. Public funds and endowments/
This website stores data such as cookies to enable essential site functionality, as well as marketing, personalization, and analytics. You may change your settings at any time or accept the default settings.
foundations are most heavily implementing or considering real assets, opportunistic xed income, absolute return, and long/short equity. Corporate funds are also embracing absolute return, but long duration is the most favored strategy-level approach used to address risk. • Most funds (94%) do not have a formal risk budget, but rather explicitly address risk management in their plan governance via asset allocation, investment objectives, and disciplined rebalancing. • Formal risk management processes are most prevalent at large funds, although around half of medium and small funds have adopted one or are considering doing so this year. Funds implementing a formal risk management process generally aim to gain a better understanding of the risks taken, monitor them, and document them.
Privacy Policy
• Forty-two percent of all respondents employ proprietary and/or third-party risk measurement tools, such as software or data services. Usage of third-party tools is most prevalent at public funds, while endowments/foundations are the greatest adopters of in-house (proprietary) tools.
Marketing
• The investment committee is the body most regularly tasked with deciding when to take action based on the ndings of risk management tools. The most common actions taken were asset allocation changes (64% of respondents), manager due
Personalization
diligence/search (56%), and increased manager monitoring (52%). A full 20% of respondents had not yet taken any actions
Analytics
based on risk management ndings. • Many fund sponsors wrestle with whether or not to tactically manage plan risk. Only 30% of sponsors have made
Save
Accept All
rebalancing decisions (including but not limited to tactical rebalancing) based on risk management ndings. Of those that have not done so, most (82%) do not plan to in the future. Public (31%) and large (25%) funds are most likely to use tactical implementations going forward.
Knowledge. Knowledg e. Experience. Integrity.
2013 Risk Management Survey
Respondent Characteristics
Callan conducted the Risk Management survey in Novem-
Respondents by Fund Typ Type e
ber 2012. Results incorporate responses from 53 fund sponsor organizations representing $576 billion in assets (as of June 30, 2012). Of those that measure funded status (79% of respondents), the average funded status was 75% within a range of 28% to 100%. More than one-third of respondents
Other 6% Endowment/ Foundation 17% Foundation
(37%) were Callan clients at the time they responded. The majority of respondents (51%) are public funds, and cor-
Public
Taft-Hartley 5% Taft-Hartley
51%
porate funds make up 21%. The remaining respondents are Corporate
endowments/foundations endowments/founda tions (17%), Taft-Hartley plans (5%), or
21%
other types of organizations (including charitable trusts and other types of tax-exempt plans).
This website stores data such as cookies to enable essential site The respondent pool is split by fund size into roughly three functionality, as than well$1asbillion marketing, parts: small funds (less in assets) make up personalization, and analytics. Youmake up 30%, medium funds (between $1 and $5 billion) may your settings any timethan 32%, andchange the remaining 38% are large at funds (greater $5or billion). accept the default settings.
Respondents by Fund Size Small Funds
Medium Funds
Large Funds
Privacy Policy >$15 billion
21%
<$500 million
19%
Marketing Personalization Analytics Save
$5 billion to $15 billion
Accept All
$500 million to $1 billion 11% 17%
$1 billion to $5 billion
32%
2
Knowledge. Knowledg e. Experience. Integrity.
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2013 Risk Management Survey
3
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