Evaluation Associates offers state-of-the-art asset-liability modeling and risk budgeting capabilities. Our asset-liability modeling analyses quantify the potential financial impact of the pension plan (funding, balance sheet, and pension expense) on the plan sponsor organization and is tailored to our clients’ specific circumstances, liability characteristics, and financial objectives.

We believe that the overall risk tolerance (i.e., how much financial risk a pension plan imposes on the sponsoring enterprise) is of paramount importance in developing an investment policy. We seek to identify the appropriate level of risk to be taken and the optimal blend of risks to achieve our clients’ specific financial objectives.

The main objectives of an asset-liability study for a pension plan are:

• quantifying the level and sources of investment risk and return relative to the plans’ liabilities; and analyzing the financial efficiency (risk/return) of the current asset allocation
• analyzing the effect on key risk/return metrics by making changes to the current asset allocation
• selecting the optimal asset allocation policy to control financial risks (funding, balance sheet, and pension expense) and maximizing surplus returns to reduce the long-term cost of the plan

Through a comprehensive risk budgeting analysis, we also can address asset allocation (beta) and portfolio structure (alpha) risk/return together to develop more financially efficient portfolios than might otherwise be attained if they were addressed separately.

A summary diagram of our asset-liability modeling process is shown below.