In today’s volatile environment there is a need for a dedicated risk overlay function, which is managing assets against liabilities on a continuous basis. Many providers claim they can offer this service, but large differences exist.

Client request:
This GBP 5 bn multi-employer scheme wanted to improve the quality of their risk management by identifying and selecting an appropriate independent risk overlay and solvency manager.

Our approach:
• The project started by agreeing the requirements for an independent risk function, including roles and responsibilities and a set of criteria against which to assess the risk overlay manager.
• A shortlist of five providers was agreed, with the best possible fit given the pension fund’s requirements using Avida’s global database of risk overlay managers.
• Each provider was invited for an in-depth interview with the pension fund including a role play involving simulated crisis situations. This was followed by detailed due diligence.
• The risk overlay manager with the best fit was selected.

Deliverables for the client:
• Appointment of a risk overlay manager to continuously oversee the asset portfolio against liabilities and manage solvency within the agreed flight-path.
• Reduced downside risk (both economical and IFRS) for sponsor.
• Improved ongoing risk monitoring and reporting.
• Full see-through inside the underlying manager portfolio’s ensuring key risks are managed within a holistic framework.
• More effective and intelligent rebalancing.
• Better organisational continuity and less key man risk in the risk function.

The appointment took less than three months and provided the pension fund with a best-in-class sustainable solution to their risk management problem.