Performance objectives should be included, these typically being based on such indicators as the Standard and Poor's 500 Index and the Russell 2000 Growth Index. Also part of the investment policy statement are mechanisms for performance review, dissemination of information to participants, investment advice, and reporting requirements. Click here to request reprint of article. Risks unique to pension funds include ownership risk , funding risk, and cash flowrisk. Each fund has its own investment profile with a stream of liabilities or future benefits.
Asset allocation is the key determinant of portfolio performance.
Diversification can dampen volatility, reduce risk and enhance returns. Pensions Invest over market cycles and mitigate risk through asset allocation by periodically rebalancing allocations and diversifying within asset classes by investment style. Indexed vs.active management. Every asset class has long-term capital market assumptions. The investment portfolio drives the plan funding.