GLOBAL - The International Organisation of Pension Supervisors (IOPS) has released a set of good practices relating to the risk management of alternative investments by pension funds.
The document is directed at pension supervisory authorities to aid them in their assessment of whether the pension funds under their jurisdiction are managing their alternative investments adequately.
According to IOPS, the potential risks flowing from pension funds' increased investments in alternative investment categories such as private equity, (fund of) hedge funds, infrastructure and microcredits, "justify specific attention from supervisory authorities".
Recent market turbulence emphasises the need for more regulatory attention to alternatives, according to IOPS.
"In accordance with the IOPS core principle of risk-based supervision, the supervisory efforts with respect to the risk management for alternative investments should be concentrated in those areas where problems are most likely to occur and the impact of problems is most likely to be extensive," writes the IOPS in its document today.
Supervisors should, for instance, check if a pension fund acts with due diligence when assessing alternatives, to ensure they take appropriate account of the specific risk and return characteristics of the investments, suggests the body.
Other topics covered in its assessment are due diligence, contract terms and monitoring, communication with stakeholders and outsourcing.
Also, the supervisor should ensure the alternative investments fit with a scheme's overall strategy and that due account has been taken of the scheme's total risk profile.
The IOPS is an independent international body with around 50 member countries and territories, representing countries involved in the supervision of private pension funds, and has recently completed licensing guidelines for pension entities.
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