Don’t optimise, satisfice!

Tuesday 25 June 2019

Author: Phil Redding 

In this paper Don’t optimise, satisfice!  Phil Redding and Stefan Lundburg put forward a way for pension schemes, and other long-term investors, to navigate uncertainty in a complex world. For a Defined Benefit (DB) scheme, transforming the balance sheet problem to an asset-only investment problem means removing unintended investment risks in order to focus on the intended investment risk.
 
Satisficing requires expertise

To achieve ‘true’ diversification, it is suggested that the application of scenario thinking; a dynamic approach as the potential scenarios are path-dependent. The final step is to construct a satisficing investment portfolio, which can reach the goal under a wide range of potential market outcomes. In addition to managing financial risk and operational risks, other risks such as macro longevity risk and regulatory risks remain.

Read the full paper

 

 

Related Articles

Jun 2019 » Opinion

Seasons, natural disasters and perfect storms

Jan 2020 » Opinion

Solving the investment communications paradox

Dec 2019 » ESG

What is the future for ESG investing?

Dec 2019 » Investments

Why we need investment into smart city infrastructure