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The liability market value as benchmark in pension fund performance measurement
Published online by Cambridge University Press: 28 October 2014
Abstract
Often performance of pension funds is assessed based on the development of the assets only, neglecting the simultaneous development of the liabilities. This especially is the case in Switzerland, one of the world's largest markets for corporate pension funds. We create a new liability benchmark for referencing the asset performance. Measuring the asset performance with respect to the liability benchmark yields the Asset-Liability-Result. We apply the model to (i) the Swiss pension fund market as a whole and (ii) an individual Swiss pension fund. With our new approach, we are able to show that the pension funds’ recovery from the recent financial crisis took much longer than the value increase of the asset portfolios suggests. We strongly advocate the use of a liability benchmark for analyzing the entire pension fund markets’ performance and specifically as operational tool for individual pension funds.
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- Copyright © Cambridge University Press 2014
Footnotes
We would like to thank an anonymous referee for his highly appreciated comments that addressed important topics and added significant value to our paper.
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