Buy‑side ALM product of the year: Moody's Analytics

Simon Robinson, Moody’s Analytics
Simon Robinson, Moody’s Analytics

Firms offering defined benefit (DB) pension schemes need greater visibility and control over their pension plans to manage recent levels of risk exposure and ensure they are protected against downside risk. They are also seeking ways to improve resilience and visibility across their portfolios to meet the challenge of emerging risks and new investment strategies.

PFaroe DB is an asset and liability data and risk analytics platform that helps DB pension stakeholders understand the impact of risk drivers on their investment and funding strategies. The platform’s advanced analytics tools provide a view of a pension scheme’s key metrics, including multi-asset valuations and liability risk, real-time developments in a plan’s funding position, and the potential impact of evolving market conditions across a plan’s lifetime.

PFaroe DB provides a high level of visibility on a cross-balance sheet, multi-jurisdictional, multi-asset basis. It also offers schemes an aggregate view of assets and liabilities across funds. Using the platform allows asset owners, investment managers and consultants to move beyond an isolated view of liabilities and assets, and examine the combined effects on hedging, liquidity, funded status volatility and more. This gives schemes greater control over their data, which results in informed decisions and more resilient portfolios. By analysing pension fund risk attributes and aligning the investment portfolio with risk and return objectives, they can perform robust forecasting analysis for asset-liability studies and evaluate the impact of investment and funding strategies over time.

In response to the growing focus on environmental, social and governance, and climate risk, Moody’s Analytics has enhanced the PFaroe DB platform to meet current climate reporting challenges. The platform can now support pension plans in meeting the Task Force on Climate-Related Financial Disclosures (TCFD) reporting requirements and understanding the impact of climate risks on the scheme’s funding strategy. It offers an analysis of the impact of climate scenarios, including transition scenarios on plans’ assets and liabilities as well as reporting on a range of emissions and climate-based metrics.

The platform also allows users to perform real-time scenario stress-testing and projections supported by Moody’s Analytics Scenario Generator software or clients’ own models. A further upgrade to the solution sees the integration of the CreditEdge system, which allows schemes and their advisers to monitor and assess sponsor covenants using forward-looking metrics.

Six new firms have selected PFaroe DB as their pension risk management platform in the past 12 months, joining Mercer, Vanguard and HSBC. It is now used to model more than 4,000 plans and $1.9 trillion in assets, primarily in the US and the UK. And this year saw the launch of the platform in Canada with Lifeworks and Manulife.

Judges said:

  • TCFD reporting is a welcome addition.”
  • “Climate risk reporting for UK pension plans.”
  • “Solid asset and liability management upgrade from the leader in the space.”
  • “Good quantitative models.”

Simon Robinson, Director of Product Management at Moody’s Analytics, says:

“Fragmented and outdated information is one of the biggest barriers to the effective operation of a pension scheme. Additionally, understanding the impact of risk drivers on investment and funding strategies is key for stakeholders to stay on top of the funding position and manage against future downside risk. By providing the only purpose-built platform that provides a holistic view of the pension scheme, both in terms of assets and liabilities, PFaroe DB connects the dots for all DB pension stakeholders and, as a result, improves resilience and visibility across the entire portfolio.”

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