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The liability market value as benchmark in pension fund performance measurement

Published online by Cambridge University Press:  28 October 2014

LIDIA BOLLA ,
HAGEN WITTIG  and
ALEXANDER KOHLER
LIDIA BOLLA
Affiliation:
Algofin AG, Webergasse 15, 9000 St. Gallen, Switzerland (e-mail: lidia.bolla@algofin.ch, hagen.wittig@algofin.ch)
HAGEN WITTIG
Affiliation:
Algofin AG, Webergasse 15, 9000 St. Gallen, Switzerland (e-mail: lidia.bolla@algofin.ch, hagen.wittig@algofin.ch)
ALEXANDER KOHLER
Affiliation:
Deloitte Consulting AG, General Guisan-Quai 38, 8022 Zurich, Switzerland (e-mail: akohler@deloitte.ch)
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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.

Keywords

G1G230H55Pension fundsasset liability managementliability valuationliability benchmarkperformance measurement
Type
Articles
Information
Journal of Pension Economics & Finance , Volume 15 , Issue 1 , January 2016 , pp. 90 - 111
Copyright
Copyright © Cambridge University Press 2014 

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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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