Cardano is involved in several initiatives important to the pensions industry. Learn more about our involvement in the following projects:
- Hybrid Derivatives
- Value Transfers in Pensions
- The Currency Exchange Fund
- Hedging Longevity Risk
- IMQubator
Only protect yourself against your real weaknesses
Over the last decade, many pension funds have exchanged their asset-only portfolio construction practice for a much broader asset-liability management framework. As a result, many funds now manage their overall risk through the use of interest rate and inflation derivatives, as well as equity derivatives. However, these risks are often managed individually. The next logical step therefore is to manage all risks jointly by focusing on the fund’s overall solvency position i.e. the funding level.
The need to hedge (real) interest rate and equity risks separately can be low if a pension fund can weather the storm if either fell in isolation. Buying option contracts on equities and interest rates separately could then lead to protection being bought for cases where it is not needed, resulting in unnecessary spend of premium. The main concern for a pension fund will normally be a combined adverse market scenario, e.g. primarily if both equities and (real) interest rate levels were to experience serious decreases.
We assisted the Rabobank Pension Fund in their drive for targeted Risk Management, by implementing an innovative hedging strategy using ‘hybrid derivatives’. By using hybrids the protection can be specifically tailored towards avoiding negative impacts on the funding level of a combined decrease in equity returns and (real) interest rates. The unprecedented size and the tailoring to Rabobank's objectives make the protection state-of-the-art. The protection resulted in a significant improvement of their risk profile, which did its job very well during the financial crisis in the second half of 2008.
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