The asset / liability mismatch

A key adage that any investor should observe is ‘don’t take unrewarded risk’. This is of particular relevance to pension funds globally that have tended to mismatch the bonds they hold relative to the liabilities they need to pay.

Perhaps the two most striking examples can be found in the US and the UK. In the US most pension funds invest in core-type, aggregate benchmarks which are of much shorter duration than their liabilities. In the UK, a large proportion of the liabilities to be paid are