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Asset Liability Management: Evidence from the Banco de Portugal defined benefit pension fund

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  • Maria Teresa Medeiros Garcia
  • Liane Costa Gabriel

Abstract

The level of financing of pension fundsand the inherent risk of default is an issue which has assumed increasing relevance, due to the difficulties that pension funds have beenfacingover recent years, which mainly result from changes in demographic conditions, such as the ageingof the populationand increasing longevity, compounded by the 2008 financial crisis and the Great Recession. Asset Liability Management (ALM) models can be employed to optimiseassetsandliabilities, and at the same time minimisethe risks of a fund, whereby the choice of the best model for a fund dependson the fund’sspecificcharacteristics and risk-return profile. This paper is mainly a theoretical study, where a literature reviewis first carried out both on pension plans and pension funds and alsoon the importance of ALM.This is followed by an analysis of the evolution of this risk management instrument and a description of the selected modelsis then presented. To conclude, an analysis of the application of ALM fora pension fund, the Banco de Portugal defined benefit pension fund, is carried out.

Suggested Citation

  • Maria Teresa Medeiros Garcia & Liane Costa Gabriel, 2021. "Asset Liability Management: Evidence from the Banco de Portugal defined benefit pension fund," Working Papers REM 2021/0159, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    • Handle: RePEc:ise:remwps:wp01592021
    as

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    References listed on IDEAS

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    Keywords

    Pension Funds; Pension Plans; Asset Liability Management; Risk Management; Funding Ratio;
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