Managing investments within a corporate context requires close alignment between assets and liabilities. Asset-liability management (ALM) is a key financial management tool, particularly when it comes to funding occupational pension liabilities. It helps companies to derive their strategic asset allocation from their individual objectives, constraints and available risk budgets.
For treasurers and CFOs, however, returns are not the sole focus. Equally relevant are liquidity requirements, balance sheet impacts, financing flexibility and the resilience of the investment portfolio to various market and stress scenarios. A sound investment strategy must therefore take into account both the maturity of available funds and the structure of the underlying liabilities.
The new paper first classifies capital investment according to short-, medium- and long-term investment horizons and demonstrates how a company-specific system of objectives can be developed from this. Building on this, the three core functions Pay, Hedge and Grow are explained. These serve to structure the investment portfolio functionally around securing future payments, hedging material risks and generating long-term capital appreciation.
The publication focuses on deriving a strategic asset allocation using ALM studies. Among other things, it addresses the differences between asset-only and asset-liability approaches, as well as the differing requirements of defined-benefit and defined-contribution structures. Furthermore, the paper examines the role of illiquid asset classes, the importance of diversification, and the practical implementation and monitoring of a strategic asset allocation.
A detailed case study illustrates how the investment portfolio of a corporate pension fund can be adapted over time to changing accounting requirements, market conditions and strategic objectives. It also demonstrates that ALM and strategic asset allocation are not static concepts, but must be regularly reviewed and refined.
The paper is aimed at corporate treasurers, CFOs and other finance professionals who wish to gain a sound overview of the interrelationships between investment, pension liabilities and strategic asset allocation, or who wish to further develop existing ALM processes.
The publication was produced by a team of authors from the Asset Management department.
Die deutsche Fassung finden Sie unter diesem Link.
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Please note that this is therefore a machine translation, which may deviate from customary professional or linguistic standards, particularly with regard to technical terminology, industry-specific expressions, or linguistic nuances.
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