Most Pension Funds Intend to Increase Spending on Scenario, Risk Modeling Tools, per Survey

Pension executives reported confidence in their plans’ abilities to manage these processes, but there is room for improvement, according to Ortec Finance.

Approximately two-thirds (66%) of U.S. pension funds anticipate increasing spending on scenario and risk modeling, asset-liability management and stress testing over the next two years, according to a survey from Ortec Finance B.V.

Of those surveyed, 30% of pension funds reported that their teams are very effective at scenario modeling and stress testing, Ortec found. Additionally, 18% reported they plan to increase their budget and focus dramatically on these areas, 26% said their budgets and focus will stay the same, and 8% said their budgets will decrease. Of those surveyed, 68% reported being quite effective at these processes, and just 2% admitted to not being effective.

“Our clients are confident that using scenario analysis as a part of their workflow allows them to uncover risks, find new opportunities, and navigate uncertainty,” said Richard Boyce, Ortec Finance’s managing director for North America, in a statement. “With increased market and geopolitical uncertainty, we believe scenario modeling is one of the best methods for supporting pension funds looking to navigate these unknown waters.”

Additionally, the survey found that 42% of pension funds outsource their asset-liability management studies. Approximately 50% of those surveyed said they outsource some aspects of their ALM studies but do some work in house. Only 6% of pension plans said they do not outsource ALM studies, with 2% not expressing a view.

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Approximately 12% of those surveyed said their internal ALM monitoring capabilities are excellent, 56% rated theirs as good, while 32% rated their capabilities were average.

“It’s promising to see that the U.S. pension plan managers surveyed plan to increase their budget set aside for stress-testing and scenario modeling, because we see those who do benefit, as scenario modeling can leave managers better prepared to make decisions in light of increased uncertainty,” Boyce said in a statement.

Ortec Finance and research firm Pureprofile surveyed 50 executives from public, corporate and multiemployer pension funds representing $670.4 billion in assets under management. The firms conducted the survey in November.