GLOBAL - Solving the risk management challenges they face in the next decade is the top priority for institutional investors, according to a survey by Pyramis Global Advisors, the institutional arm of Fidelity.

Respondents said the top three lessons they had learned from the financial crisis were the need for more downside protection (62%), improved risk management (54%), a better match of assets and liabilities (49%) and a realisation that they were less diversified than they thought (42%).

The survey covered chief investment officers, treasurers and executive directors at 466 corporate and public pension plans in the US, Canada and 11 European countries, with a total $2.0trn (€1.6trn) in assets. There were 138 European respondents, mainly from the UK and other north European countries.

The top concern of pension plan sponsors overall was their current funded status (23%), followed by volatility (21%) - either the volatility of a plan’s funded status or its asset volatility - and a low investment return environment (19%).

However, in the UK and northern European countries, the biggest concern was a low interest rate environment, with exception of  Nordic countries, where 36% cited risk management as foremost on their mind.

Corporate plans in the US worried most about the volatility of their funded status, while the majority of US public plans were thinking of the current level of their plans’ funded status.

Solvency ratio, a financial strength measure of Canadian pensions, was mentioned by 23% of respondents in Canada.

Young D. Chin, chief investment officer, Pyramis Global Advisors said: “Pension plan executives gained a new appreciation for risk management during the recent financial crisis.

“As a result of the many lessons learned, plans are implementing new investment strategies and risk measures designed to meet their long-term goals.”

Plan sponsors across the regions also differed in their definition of volatility, which influences the investment strategies they pursue as well as their views of risk.

Northern European and US public pension funds define volatility as asset volatility and intend to broaden diversification - as a return enhancer and risk reducer - to include more global equity and alternative assets. In addition, they expect to offer more investment committee education and streamline decision-making in order to execute timelier asset allocation decisions.

“There is an important educational component to each strategic response,” said Chin.

“The committees responsible for pension plan investments need to understand how global diversification, for example, can introduce new portfolio risks or how broadening allocations can affect liquidity risk management. Managers who can develop effective investment strategies and effectively partner with institutional investors in the educational effort are best positioned to help their clients find solutions for the new decade.”

The survey was conducted during June and July 2010, by telephone and online.