Introduction
In response to cost pressures and a desire for greater control over investments, a top pension fund in North America decided to manage some asset classes in-house. However, with additional holdings, including complex assets, the client faced challenges in effectively monitoring and managing associated risks.
Analyzing the Problem
- External investment management costs prompted the client to internalize management for select asset classes to reduce spending.
- Added new holdings, some of them complex, required specialized expertise to ensure effective risk management.
- The client's team lacked the essential resources to actively monitor and manage risks associated with in-house asset management.
Initial Challenges
- Without additional risk management expertise, the client struggled to effectively manage the complexities of in-house asset classes.
- Monitoring and managing risks for complex asset classes requires specialized knowledge and tools beyond the client's current capabilities.
- Transitioning from monthly to daily reporting service was essential to ensure continuous monitoring and alignment with investor risk parameters.
Our Solution
- The Managed Services (MS) team collaborated closely with the client and risk consultants to create a separate overlay strategy node in the Total Plan allocation tree, focusing on hedged positions.
- An interactive dashboard was developed to enable the client to monitor hedging strategy outcomes and ensure portfolio alignment with investor risk parameters.
- To enhance risk oversight, the client was transitioned to a daily reporting service, providing real-time insights into portfolio risk dynamics.
Key Results Achieved
- The client successfully managed the risk of in-house asset classes without the need for additional risk management experts.
- Implementation of a limits monitoring dashboard and transition to daily reporting enabled continuous risk monitoring and alignment with investor risk parameters.
- Leveraging in-house resources and strategic partnerships, the client achieved cost efficiencies while maintaining effective risk management practices.
Conclusion
Through strategic collaboration and innovative solutions, the top pension fund in North America successfully transitioned asset management in-house while ensuring effective risk management. Tailored risk monitoring tools and daily reporting services implementation empowered the client to actively manage risk and achieve cost efficiencies, demonstrating the importance of expertise and technology in navigating complex investment challenges.
