Asset Liability Management: Evidence from the Banco de Portugal defined benefit pension fund

Maria Teresa Garcia () and Liane Costa Gabriel

No 2021/0159, Working Papers REM from ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa

Abstract: The level of financing of pension fundsand the inherent risk of default is an issue which has assumed increasing relevance, due to the difficulties that pension funds have beenfacingover recent years, which mainly result from changes in demographic conditions, such as the ageingof the populationand increasing longevity, compounded by the 2008 financial crisis and the Great Recession. Asset Liability Management (ALM) models can be employed to optimiseassetsandliabilities, and at the same time minimisethe risks of a fund, whereby the choice of the best model for a fund dependson the fund’sspecificcharacteristics and risk-return profile. This paper is mainly a theoretical study, where a literature reviewis first carried out both on pension plans and pension funds and alsoon the importance of ALM.This is followed by an analysis of the evolution of this risk management instrument and a description of the selected modelsis then presented. To conclude, an analysis of the application of ALM fora pension fund, the Banco de Portugal defined benefit pension fund, is carried out.

Keywords: Pension Funds; Pension Plans; Asset Liability Management; Risk Management; Funding Ratio (search for similar items in EconPapers)
Date: 2021-01
New Economics Papers: this item is included in nep-age and nep-rmg
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