This month's Off The Record survey found that 85% of respondent's pension fund boards had raised risk management as an agenda item in the last six to nine months. The result of this was that several funds made adjustments to their risk management policies. "[We have] discussed and set a new limit for the value at risk [to] make sure that accounting risk (funding ratio according to IAS19) is taken more into consideration, and therefore [we] invest more in corporate bonds," said a UK fund. A Dutch fund stated their plan was to "improve internal risk control and reporting systems, the assignment of a new independent risk manager, and adaptations in working procedures with more focus on risk management". Over half the survey respondents (52%) were only partially confident that the models used by their ALM provider took into account current economic and financial market conditions. Some 32% were confident of this, while 16% were not.

Equity and interest rates were by far the most significant current risk factors in respondent investment portfolios, with 84.5% highlighting the former and 81% the latter. This was most closely followed by credit (31%), liquidity (11.5%), and commodities, growth and large-caps (all 7.5%). Some 57.5% also considered interest rates to be the biggest liability risk factor. Administrative and counterparty were felt to be the most significant operational risks, with 32% of respondents selecting these above sponsor (12%), trading costs (4%), and various others (20%).

Actuarial consultants received the most positive review as risk management service providers, with 54% of respondents awarding them a good rating, while investment banks fared the worst with just 14%. Investment managers received a 36% positive rating, investment consultants 32%, risk management technology vendors 25% and custodians 22%. Some 48% of respondents considered pension funds best placed to conduct due diligence on the risk management capabilities of service providers, compared to 35% for specialist providers and 17% for consultants.

Slightly under half the respondents (44%) that had implemented a swaps programme to mitigate against interest rate and inflation risk felt it had not been fit for purpose. A UK fund commented: "It did not work as promised and didn't pick up the credit spreads. Everyone hoped that swaps would be a good overall solution, but [it] failed to deliver." Some 69% of respondents said their main reason for using swaps rather than cash-market bonds is that swaps are a better fit at certain points of the curve than is available with bonds or other assets.

Over 56% said that they do not use swaps at all points of the liability curve, with 35.5% stating that they would do it differently now compared to when they implemented swaps. "[At the] time we wanted to gain experience by only covering the average risk. Now that we have that experience, we are in the process of covering the curve risk as well," said a Dutch fund.

Respondents were split when retrospectively considering the advice they received from the likes of investment managers and consultants while implementing swaps. Many were still satisfied, but some felt it could have been better. A UK fund that consulted various advisers felt the information they received was "typically conflicted for the industry. Actuaries whose firms may earn fees and commissions from placing such hedging; investment banks whose own rewards are not aligned with [the] beneficiaries' interests; investment consultants with a tendency to offer solutions rather than balanced advice, stating both [the] pros and cons."

Just 9% of respondents stated they had taken out insurance policies against extreme risk, such as guarantee contracts or option overlays. A Dutch fund commented that this was done to "mitigate certain counterparty risks, [and to ensure] that the funds' funding ratio will not fall below a critical level". Almost a third of respondents (30.5%) have stopped or will stop investing in certain asset classes as a result of a change in risk management policy. Those asset classes terminated included private equity, emerging market debt, structured bonds and absolute return strategies.