Super funds increase stress test budgets

Over three-quarters of superannuation and pension funds are increasing their spending on stress testing, according to research.

Research by technology firm Ortec Finance of over 200 pension funds globally, including 30 super funds in Australia, found 80% of funds had increased their stress testing budget and 73% expected it to increase further in the next three years.

Almost a quarter of funds expected to see a ‘dramatic’ increase in stress testing and scenario modelling spending to combat risks such as inflation and climate change.

The adoption of more sophisticated investment strategies was another reason that more time was being spent on stress testing.

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Inflation was a particularly pressing concern with 63% expecting it to rise significantly over the next year and 10% predicting a slight increase.

However, over a third of respondents said their fund was ‘very well-hedged’ to deal with it and 53% said their fund was ‘quite well hedged’.

Stefano Lee, managing director of Ortec Finance Australia, said: “Stress testing and scenario modelling is becoming more important for Australian super funds and that is reflected in the increased budgets across the industry and plans to keep investing more.

“Super funds need to manage their balance sheet effectively in order to achieve long-term objectives while dealing with short-term risks. That includes identifying major risk sources as well as future pensions, contributions and funding levels.”