Pensions aim for new risk management models

Pensions are beginning to address the failures of their risk models. This will take many forms but at its heart, the new risk management systems feature a return to human intervention, that is, a judgmental overlay. Now to be sure, all technologically driven models allowed for human override. But the industry got really comfortable with the state-of-the-art models, symbolized by VAR.

Everyone knew VAR wasn't perfect--a few researchers have recently come up with CoVAR--but times were good. Heck, they were great. There just wasn't a huge incentive to change, but now there is. And many pensions are overhauling their risk management methods. Pensions & Investments notes that CalPERS is aiming for a new risk model that can capture "factors that have emerged in the crisis:" Leverage, liquidity, counterparty and concentration risk. My sense is that technology ought to play a role in this. Increasingly, real-time analytics is the only way to go. The time has come for a two-pronged update. 

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