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This chapter recounts the experience of the Canada Pension Plan Investment Board in designing and implementing its Risk-Return Accountability Framework and risk budgeting. The implementation of a classic risk budgeting framework was a seamless integration with existing processes in the investment group investing in publicly traded liquid assets, but proved to be problematic in investment groups investing in illiquid assets. Firm risk targets were established for publicly traded investments, but the team developing the risk budgeting program developed risk forecasts to better fit the business model of private investments and real estate.
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Opinions and conclusions are solely those of the author(s) and do not reflect views of the institutions supporting the research, with whom the authors are affiliated, or the Pension Research Council. Copyright 2009 © Pension Research Council of the Wharton School of the University of Pennsylvania. All rights reserved.
Date Posted: 23 August 2019