DALM Solution : Dynamic Asset & Liability Management

Jan 01, 2012

DARM pen



The DALM solution is an extension of the TPPI approach to Asset Liability Management (ALM).  The TPPI (Time-varying Proportion Portfolio Insurance) is an advanced portfolio insurance technique.  The DALM designs a dynamic allocation between a core portfolio and satellites. The core portfolio is built to hedge the liabilities of the pension fund and satellites are constructed to seek performance. The DALM allows the use of several assets with the objective to optimize funding ratio management. 

The investment in the risky asset (satellites) not only depends on the risk-aversion, but also on the margin for error of investors (i.e. how far is the actual funding ratio from the funding ratio we are trying to protect or how far is the actual Solvency capital ratio from the SCR we are trying to respect).

Active Asset Allocation experience with pension funds when applying the DALM solution shows a significant improvement of the funding ratio, a reduction of its volatility and a substantial diminution of contributions.

DALM comparison with traditional approach for pension funds