EUROPE - Classic balanced or multi-asset mandates have failed to protect pension funds during the current crisis and need to be reconsidered, according to both Allianz Global Investors and German consultancy Heubeck Feri.

"Many systems for analysis and early warnings have to be reconsidered and some new investment restrictions, be it internally or externally, might have to be put in place," argued the Heubeck Feri in a statement.

Officials at Allianz Global Investors (AGI) also agree there might be more regulation and, like Heubeck Feri, stressed the need for changes to risk management systems.

In the current crisis, as in other extreme market situations, "diversification effects often disappear and traditional balanced or multi-asset mandates cannot fully protect against downward movements", claimed AGI in a paper on risk management.

High volatility and correlation have "unveiled as yet unnoticed risks in the asset allocation which have to be addressed with the right risk management measures", Heubeck Feri also pointed out.

Allianz suggested there is a need to move away from the classic bond/equity benchmarks towards a more dynamic asset allocation, to help manage risk long-term, though the firm argued measures should be part of a risk management strategy which clearly divides risk assessment from risk management and risk control.

Both houses agree there will be more focus on risk management among pension funds - "be it in-house or via external partners", added AGI.

While pension funds are at present still analysing problems and thinking about solutions, AGI is convinced that the trend will be to shift towards a more qualitative approach to risk management and rule-based solutions for both risk and asset management

Both Allianz and Heubeck Feri said they see asset liability models as a possible solution for some of the risks pension funds now face.

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