GLOBAL - State Street Global Advisors (SSgA) has launched a new strategic asset allocation product for defined benefit plans.
The product called dynamic risk allocation model (DRAM) will provide an “investment roadmap” to help manage liabilties and market risk.
The fund manager said that this approach sets a strategic allocation policy that determines the response of a defined benefit plan’s asset mix to changes in the market environment.
“DRAM means replacing a static strategic benchmark with a dynamic strategic policy which states in advance what a fund’s risk appetite will be, given various combinations of wealth (funding ratio) and opportunity (risk premia),” the company said in a press statement.
This model allows plan sponsors to directly manage assets relative to projected liabilities, and permits the fund’s asset allocation to shift in response to changes in value and in risk premia, SSgA said.
Tony Foley, managing director of SSgAs’ advanced research centre said: “Our new solution offers pension funds a better strategy with which to manage projected liabilities and market risk.
“With DRAM, a plan sponsor will essentially have an investment roadmap that establishes in advance how the strategic allocation should vary with changes in expected returns, wealth levels and degree of risk aversion in order to best meet the objectives of the fund.”
The new “turnkey” service will be offered as an overlay to an existing investment strategy, and builds from the client’s liability profile. SSgA will work with the pension plan and its consultant to determine a dynamic risk budget which will define a client’s tolerance for market risk as wealth and risk premia change.
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