In defence of pro-cyclicality, by Adina Grigoriu

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Adina Grigoriu asks, is pro-cyclical risk management necessarily a cost – or can it be an unexploited source of performance? 
EIOPA’s call for advice on the review of the IORP directive has brought forward many questions. One that both pension funds and their advisers raise is: « What is the cost of risk management? » But isn’t there an even a better question to ask: « What is the cost of not managing risks? »

For many investors, the answer to this question should trigger risk management measures immediately, independently from legislation. Aren’t we all, in one way or another, paying for those that took risks bigger than they could afford? The management of assets with little or no link to liabilities continues to have dramatic repercussions that can go as far as the lack of pensions for people who have worked their entire life…