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U.S. pension plans regularly perform asset analyses to gauge how their fund’s strategy is performing. Usually, they hire an external investment consultant to review the portfolio. While this is a beneficial and necessary exercise, it doesn’t go far enough.

At Ortec Finance, we believe a more holistic review process known as asset-liability management (ALM) leads to better investment decisions. In addition to analyzing the asset side of the balance sheet to determine whether a pension plan can achieve its long-term objectives, ALM examines the liability side, too. It identifies potential sources of risk, trends in contribution levels and scenarios where the plan could potentially fail to meet its commitments. 

Asset and liability-related decisions cannot be made in isolation – rather, they are interdependent. How the liabilities behave ultimately affects what is the best investment strategy. Anticipated investment returns and risk may prompt changes on the liability side. This approach helps trustees better understand the many pension-related dynamics, which leads to better strategic decision-making. It helps fund managers achieve objectives that reflect the interests and risk appetite of all stakeholders.

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