Hedging of corporate pension liabilities
Bernd Scherer here proposes a normative theory of asset/liability management that views externally funded pension funds exclusively from a corporate finance point. Standard asset management solutions are derived after the corporate finance problem has been resolved. Chief executive officers that want to increase shareholder value need to recognise that even fully funded plans might carry large risks to shareholder equity if the asset allocation deviates too much from the liability profile.
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