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Our risk management philosophy

Stability

We believe that a stable development of the coverage ratio contributes to a safe and adequate pension, to peace of mind and trust among pension participants and to the continuity of the pension fund. This is realised by only taking acceptable financial risks and avoiding dangerous lows.

Uncertainty

We understand that the manner in which we make decisions has an enormous impact on the amount of risk we take and – in a broader sense – on the development of financial markets and on our financial system. When making decisions, we step into countless cognitive pitfalls. For example, we are naturally overconfident, have a hard time dealing with ambiguity and quickly revert to stereotyping. We create our own subjective and often significantly simplified version of reality.

Nevertheless, the world we live in is infinitely more complex than we would have ourselves believe. Financial markets tend to develop in a more unpredictable and extreme manner than mathematical models typically suggest. We can therefore only guess at the impact of long-term policies.

This means we have a tendency to approach an uncertain world with ideas and tools best suited for knowable risks. We underestimate the dangers we face.

Dealing with uncertainty

We try to avoid the pitfall of managing financial risks with an LDI strategy based solely on a subjective or purely mathematical world view. Instead, our method is based on three pillars: scenario thinking, thinking in terms of consequences and group dynamics.

Scenario thinking

Scenario thinking is a powerful instrument for breaking free from rigid, subjective convictions on how the world will develop in the future. Proper risk management calls for a broader perspective. We utilise challenging scenarios in addition to mathematical analyses. The result is a more robust strategy, i.e. one that is less vulnerable if predictions turn out to be false.

Thinking in terms of consequences

We focus on the consequences of policy in various scenarios, rather than on the probability of a scenario becoming reality. After all, the consequences for the pension fund are what matter. Once the consequences of policy in relevant stress scenarios are insightful and acceptable, we recommend to test the strategy and optimise it by using mathematical models.

Group dynamic

We strive towards an effective group dynamic when making decisions. As individuals, we can hardly avoid our cognitive pitfalls and deep-seated convictions. Together, we can. By reorganising the decision-making process, we make better decisions as a group.