Sovereign wealth funds must consider liability risk

Crown_and_ScepterSovereign wealth funds are not solely focused on accumulation but must also consider liability and contribution risks, such as the risk of failing to meet their objectives or having their contributions dry up, says a survey by the Edhec-Risk Institute.

The survey of sovereign wealth funds found that many respondents think the asset management industry is not providing liability-driven investment (LDI) services that are appropriate to their situation.

Eighty-nine percent of the respondents said sovereign wealth funds are subject to short-term constraints, for instance limits on potential drawdown or minimum performance targets. Meanwhile, 92% said implicit liabilities reflecting the fund's objectives should be taken into account by asset managers.

A majority of respondents said there is a lack of dedicated services for asset-liability management and risk management for sovereign wealth funds.

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