Correspondence: Robert Brown, Watson Wyatt Limited, Watson House, London Road, Reigate, RH2 9PQ, UK. Tel: +44 01787 284387; E-mail: robert.brown@watsonwyatt.com

¹is Chairman of the Global Investment Committee at Watson Wyatt, and discusses the use of multiple sources of risk and return to construct more robust portfolios and improve investment efficiency.

Received 13 December 2007; Revised 13 December 2007.

Abstract

Pension funds have historically relied on investment in equities to generate most of their return and therefore equities have also been the main contributor to risk relative to their obligations. This paper identifies the benefits that should follow from including a wider range of asset classes (subject to acceptable levels of valuation) in an investment portfolio and the changes in thinking and practice required to effect this.