Crisis Management Roundtable for pension funds

Bart Heenk, Apr 25, 2022 12:25:26 PM

On the 20th of April, Avida International and Strategia Worldwide organised a Roundtable on Crisis Management for pension funds. What ensued was a fascinating discussion which looked specifically into the Russian Invasion of Ukraine and its wider impact on pensions funds’ finances and operations. This is a summary of the discussion.

Geopolitical situation and background

The Russian Invasion on Ukraine is not a surprise event but a culmination of Putin’s aggressive expansionist agenda which began even before 2014. Russia has failed in Ukraine due to 3 key reasons:

  1. Putin has underestimated the military capabilities of Ukraine.

  2. Putin has underestimated the Western response.

  3. Putin has overestimated his own military.

Putin’s failures have put him into a corner, and this combined with his unpredictable aggression means the West needs to recognise he could escalate the conflict by using chemical weapons and even a nuclear war (a genuine possibility). De-escalation of the conflict is unlikely, nor will there likely be peace in Europe whilst Putin is in the Kremlin.

Impact on pension funds

The geopolitical backdrop has implications for pension funds that go well beyond direct Russian investment exposure. Pension Funds should think through the portfolio consequences of further economic sanctions and look in detail at their supply chain by identifying critical dependencies on third party providers, like custodians, LDI managers. Cyber-attacks are an ever-increasing possibility so a pension fund must keep up to date with the latest developments in cyber security. The FCA’s operational resilience guidelines are a useful gauge at preparing an organisations’ response to crises.

Take-aways for pension funds

Pension Funds must build resilience in their organisations, which means training people and testing their crisis management plans. This will help avoid events turning into a crisis. No crisis is identical to the one you have planned for, so there is a need to develop resilient adaptation. This can be done through scenario planning, war gaming and crisis management simulations. Simulating a crisis helps build resilience and intellectual ‘muscle memory. This enables them to act effectively when a real crisis occurs. Finally, there is a genuine benefit in employing a third party to evaluate an organisation’s crisis management plan. An outsider is better able to see the blind spots.

Experience has shown that trust can be gained or lost in a crisis. A well-prepared organisation is able to build trust with both its internal and external stakeholders as well as its clients and come out stronger as a result.

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