OAKS, PA--(Marketwired - Jun 11, 2013) - SEI (
"Failure to integrate the pension portfolio strategy with various enterprise risk factors could potentially have a detrimental impact on balance sheets, cash availability, and other financial metrics," said Thomas Harvey, Director of Advice, SEI's Institutional Group. "Plan sponsors can benefit from a careful analysis that not only stress-tests the portfolio against economic variables, but also projects corporate financials under matching environments."
Most plan sponsors already employ financial modeling tools that use capital markets assumptions to project future asset allocation outcomes, in order to make educated decisions regarding pension-specific strategies. The paper suggests that plan sponsors find ways to determine how these potential outcomes impact not only the pension, but also important corporate financial metrics as well. The ability to stress test the pension portfolio alongside corporate financials provides a dynamic view of how pension volatility and corporate performance interact. Three areas of enterprise risk identified by the paper include:
1. Operational risk: The stability and visibility of free cash flows and the risks and key drivers associated with top line performance.
2. Financial risk: Liquidity such as cash flows and available credit, tenor, and covenants associated with existing debt structure, refinance risk and potential contingent liabilities.
3. Pension risk: Size of the pension assets and liabilities relative to the corporate sponsor, measured by multiple metrics, including:
- Pension Assets/Market Capitalization
- Pension Assets/Adjusted Corporate Assets
- Pension Assets/Book Value
- Unfunded Pension Obligation/Adjusted Balance Sheet Liabilities
- Pension Expense/Corporate Income
None of the companies evaluated are Institutional clients of SEI. To access the full paper, please visit: http://www.seic.com/enUS/about/11916.htm?cmpid=INSTUSDBWPQ213-1.
About SEI's Institutional Group
SEI's Institutional Group is the first and largest global provider of outsourced fiduciary management investment services. The company began offering these services in 1992 and today acts as a fiduciary manager to approximately 450 retirement, nonprofit and healthcare clients in seven different countries. Through a flexible model designed to help our clients achieve financial goals, we provide asset allocation advice and modeling, investment management, risk monitoring and stress testing, active liability-focused investing and integrated goals-based reporting. For more information visit: http://www.seic.com/institutions.