Pension funds assessing their ability to take on equity risk would do well to adopt a “holistic” approach that considers not only the more “technical” aspects of risk associated with financial products, but also the ability of schemes’ sponsors to cover that risk.

Speaking at the eleventh annual IPE Awards Seminar in Brussels, Karel Stroobants, an independent director at the Belgian Metal Workers Pension Fund, said all pension funds assessing their position must, before all else, combine the risk of underfunding with plan sponsors’ covering ability.

“Too often, risk is looked at only from the financial product point of view,” he said.

“Lots of asset managers in the market will tell you ‘we have a product that takes away negative volatility’. That’s de-risking from the technical point of view of the financial product, which is completely different from de-risking or risk management from the underfunding point of view.”

Stroobants added: “We’ve all had problems with sponsors who say ‘go on - take the risk, we will we’ll pay’. But then when you knock on the door to say ‘we need x million euros’, they say ‘I’m sorry, it’s not the right moment, we cannot pay’.

“Any equity risk a pension fund takes must fit within this [holistic] programme. It doesn’t stand alone.”