According to results of Callan Associates’ 2013 Risk Management Survey, more than half of fund sponsors (55%) say their risk management tools are effective at mitigating investment risk, but 14% see them as simply a means to improve risk identification and monitoring. One-third of respondents indicated they do not know yet the effectiveness of their risk management tools because they are new and untested in a true market crisis. The survey found formal risk management processes are most prevalent at large funds. Half of the medium and small funds have adopted a risk management process or are doing so in 2013. Forty-two percent of respondents employ proprietary and/or third-party risk measurement tools, such as software or data services. Usage of third-party tools is most prevalent at public funds, while endowments and foundations more often use in-house (proprietary) tools. Corporate and public funds are embracing policy-level approaches to risk management more so than endowments and foundations. Public funds have implemented economic regime asset allocations, risk parity, and risk factor-based asset allocations, while corporate funds favor liability-driven investing and funded status-based glide path de-risking. Strategy-level approaches to mitigate risk are easier to implement than those that alter the fund’s overall investment policy, and Callan observed higher levels of adoption of strategy changes across fund types. Public funds and foundations and endowments are most heavily implementing or considering real assets, opportunistic fixed income, absolute return and long/short equity. Corporate funds are also embracing absolute return, but long duration is the most favored strategy-level approach used to address risk. Many fund sponsors wrestle with whether or not to tactically manage plan risk. Only 30% of sponsors have made rebalancing decisions based on risk management findings. Of those that have not done so, 82% do not plan to in the future.Public (31%) and large (25%) funds are the most likely to use tactical implementations going forward. According to the survey, most funds (94%) do not have a formal risk budget, but explicitly address risk management in their plan governance via asset allocation, investment objectives and disciplined rebalancing. The investment committee is the body most regularly tasked with deciding when to take action based on the findings of risk management tools. The most common actions taken were asset allocation changes (64% of respondents), manager due diligence/search (56%) and increased manager monitoring (52%). Twenty percent of respondents had not yet taken any actions based on risk management findings. The survey was conducted in November 2012 and includes responses from 53 fund sponsors representing $576 billion in assets.

1. 2013 Risk Management Survey
Risk Management in a New Light
CALLAN
INVESTMENTS
INSTITUTE
Survey

3. 2013 Risk Management Survey 1Knowledge. Experience. Integrity.
Table of Contents
Executive Summary 2
Respondent Characteristics 3
Are Risk Management Tools Effective? 4
External Influences 5
Reactions to the 2008 Market Crisis 6
Policy-Level Considerations 7
Strategy-Level Considerations 8
Formally Addressing Risk Management 9
Risk Management Staffing 12
Consultants 13
Risk Measurement 14
Risk Management Reports 17
Reviewing and Communicating Risk Management Findings 18
Taking Action 19
Risk-Based Tactical Moves 20

4. 2013 Risk Management Survey 2Knowledge. Experience. Integrity.
The 2008 market crisis put risk in the spotlight and prompted fund fiduciaries to look at risk management in a new light. Callan
fielded this survey in November 2012, and the results incorporate responses from 53 fund sponsors representing $576 billion
in assets. The vast majority of this group has taken concrete steps in the past five years to address investment risks. More
than half (55%) believe their risk management tools are effective at mitigating investment risk, but 14% see these systems as
simply a means to improve risk identification and monitoring. The jury is still out for one-third of respondents, as their tools are
relatively new and untested in a true market crisis. Other key findings of our survey include:
• Public and corporate funds are embracing policy-level approaches to risk management more so than endowments/
foundations. Public funds have implemented economic regime asset allocations, risk parity, and risk factor-based asset
allocation, while corporate funds favor liability-driven investing and funded status-based glide path de-risking.
• Strategy-level approaches to mitigate risk are easier to implement than those that alter the fund’s overall investment
policy, and we observed higher levels of adoption for strategy changes across fund types. Public funds and endowments/
foundations are most heavily implementing or considering real assets, opportunistic fixed income, absolute return, and
long/short equity. Corporate funds are also embracing absolute return, but long duration is the most favored strategy-level
approach used to address risk.
• Most funds (94%) do not have a formal risk budget, but rather explicitly address risk management in their plan governance
via asset allocation, investment objectives, and disciplined rebalancing.
• Formal risk management processes are most prevalent at large funds, although around half of medium and small funds have
adopted one or are considering doing so this year. Funds implementing a formal risk management process generally aim to
gain a better understanding of the risks taken, monitor them, and document them.
• Forty-two percent of all respondents employ proprietary and/or third-party risk measurement tools, such as software or
data services. Usage of third-party tools is most prevalent at public funds, while endowments/foundations are the greatest
adopters of in-house (proprietary) tools.
• The investment committee is the body most regularly tasked with deciding when to take action based on the findings of risk
management tools. The most common actions taken were asset allocation changes (64% of respondents), manager due
diligence/search (56%), and increased manager monitoring (52%). A full 20% of respondents had not yet taken any actions
based on risk management findings.
• Many fund sponsors wrestle with whether or not to tactically manage plan risk. Only 30% of sponsors have made
rebalancing decisions (including but not limited to tactical rebalancing) based on risk management findings. Of those that
have not done so, most (82%) do not plan to in the future. Public (31%) and large (25%) funds are most likely to use tactical
implementations going forward.
Executive Summary

5. 2013 Risk Management Survey 3Knowledge. Experience. Integrity.
Callan conducted the Risk Management survey in Novem-
ber 2012. Results incorporate responses from 53 fund spon-
sor organizations representing $576 billion in assets (as of
June 30, 2012). Of those that measure funded status (79%
of respondents), the average funded status was 75% within
a range of 28% to 100%. More than one-third of respondents
(37%) were Callan clients at the time they responded.
The majority of respondents (51%) are public funds, and cor-
porate funds make up 21%. The remaining respondents are
endowments/foundations (17%), Taft-Hartley plans (5%), or
other types of organizations (including charitable trusts and
other types of tax-exempt plans).
The respondent pool is split by fund size into roughly three
parts: small funds (less than $1 billion in assets) make up
30%, medium funds (between $1 and $5 billion) make up
32%, and the remaining 38% are large funds (greater than
$5 billion).
Respondent Characteristics
Respondents by Fund Type
Respondents by Fund Size
Public
51%
Corporate
21%
Other 6%
Endowment/
Foundation 17%
Taft-Hartley 5%
>$15 billion 21% <$500 million 19%
$5 billion
to $15 billion 17%
$1 billion
to $5 billion 32%
$500 million
to $1 billion 11%
Small Funds Medium Funds Large Funds

6. 2013 Risk Management Survey 4Knowledge. Experience. Integrity.
More than half of fund sponsors (55%) feel that risk manage-
ment tools and systems have had a positive overall impact
on their fund. One-third of respondents are unsure how ef-
fective these tools are, but will be able to better assess these
systems after they have been tested in a future market crisis.
Fourteen percent of asset owners do not see these tools as
effective.
Yes
• “It has changed the staff, investment committee, and board focus from alpha to asset allocation. Thus, we have been able
to build a more balanced portfolio together over the past year.”
• “It allows us to look at the portfolio from a number of different ways that we haven’t considered in the past.”
• “The fund is more diversified and has increased hedges.”
No (or Not Yet)
• “We have not yet used them to their fullest extent. We are continuing to learn how these can benefit managing our
investments.”
• “Not really. We monitor risk, but do not manage it. The only formal risk management we do is in our strategic asset
allocation and rebalancing to targets.”
• “Not used to mitigate risk—mostly to identify and understand sources of risk. Used more for monitoring than mitigation
to date.”
Note: Throughout this survey, charts may not sum to 100% due to rounding.
Are Risk Management Tools Effective?
Have risk management tools/systems been effective at
mitigating your fund’s investment risk?
Select survey respondent quotes:
Yes 55%
No
14%
Unsure/
too soon
to know
32%

7. 2013 Risk Management Survey 5Knowledge. Experience. Integrity.
Over the past decade, asset owners have begun to intensely
focus on risk while taking a step back from “reaching for re-
turns.” External factors have certainly played a role in shap-
ing how investors view risk. We asked respondents to score
the degree to which various factors have influenced their
organizations.
Asset/liability considerations top fund sponsors’ list of influ-
encing factors, which is not surprising given the plunging
funded ratios witnessed in the recent past. Future market
outlook and recent market events rank second and third,
revealing enduring uncertainties stemming from the 2008
financial crisis.
Liquidity/cash flow concerns rank fourth. Many funds faced
unexpectedly large drawdowns despite their highly diversi-
fied allocations, alongside significant liquidity and rebalanc-
ing issues caused in part by their large, illiquid private market
programs. Peer influence registers low on the scale.
External Influences
What external factors have influenced how your
organization addresses risk management?
0 1 2 3 4 5
Actions/results of peer funds
Other regulatory/political issues
Stakeholder/public scrutiny
Projected future inflation
Liquidity/cash flow concerns
Recent market events
(e.g., increased volatility, effectiveness of diversification, etc.)
Future market outlook
(e.g., low returns, high volatility, etc.)
Asset/liability considerations
(e.g., funded status volatility, contribution volatility, etc.)
2.1
3.3
3.0
2.7
2.4
2.2
3.5
1.8
Weighted Average Score (0=Least Important, 5=Most Important)

8. 2013 Risk Management Survey 6Knowledge. Experience. Integrity.
The 2008 market crisis caused asset owners substantial
stress, and continues to impact decision making. Significant
changes are occurring at many fund sponsor organizations,
frequently driven by a renewed focus on risk. The majority of
fund sponsors (81%) reveal increased concern about invest-
ment risk at their organization following the market crisis.
The focus on risk has impacted both the types of investments
asset owners consider and the entire structure of their in-
vestment policy. Sixty-two percent report that their strategic
asset allocation changed; 47% of respondents significantly
increased allocations to alternatives, which can offer diversi-
fication benefits relative to traditional asset classes. Approxi-
mately half of respondents lowered their return target.
Just one respondent indicated no changes have occurred
since 2008.
Reactions to the 2008 Market Crisis
What changes have occurred at your organization since the 2008 market crisis?
0% 20% 40% 60% 80% 100%
No changes
Adoption of explicit risk target
Other
Investment time horizon shortened
More tactical in asset allocation
(defensive to lower risk)
Changed rebalancing policies
(increased flexibility)
Appetite for return and the necessary
risk to achieve it declined
Increased resources (people, tools, budgets, etc.)
in risk measurement and management
Risk focus changed from asset to
funded status volatility
More opportunistic in asset allocation
(aggressive to increase return)
Significantly increased allocation to alternatives
(increased diversification)
Return target declined
Strategic asset allocation changed
Concern about investment risk increased
21%
2%
4%
8%
11%
21%
28%
26%
25%
32%
47%
51%
62%
81%

9. 2013 Risk Management Survey 7Knowledge. Experience. Integrity.
To assess how discussions and actions around policy-level
approaches—or those that impact the entire fund struc-
ture—are developing, we asked respondents to indicate
their organization’s status across six different strategies.
Stages range across a spectrum, from Education (first
stage) to Implemented. It is implied that those that selected
an advanced stage had already completed all the previ-
ous stages, and might have ended there. Alternately, some
funds at earlier stages may still be considering moves to
more advanced stages.
We dissect responses by fund type, as clear differences
arise in approaches between publics, corporates, and en-
dowments/foundations. For example, 73% of corporate
funds have considered risk factor-based asset allocation;
9% of those made it all the way to implementation while 36%
pursued education but had taken no further action as of the
survey response date.
Risk parity appears to have gained the most traction with
public funds at the policy level. However, the 75% figure may
be artificially high due to respondents mistakenly noting it
here when they in fact implemented this approach at the
strategy level (as detailed on the following page).
Around one-fifth of public funds have implemented risk factor-
based asset allocation, while another one-third or more have
had staff consider the policy, but have taken no further action.
Policy-Level Considerations by Fund Type
Indicate which policy-level, “risk-centric” approaches you have considered or
implemented in your investment program.
0% 25% 50% 75% 100%
Funded status-based
de-risking glide path
LDI
Tail risk hedging
Economic regime
asset allocations
Risk parity
Risk factor-based
asset allocation
0% 25% 50% 75% 100%0% 25% 50% 75% 100%
Education Staff Consideration Presented to Committee Board Approved Implemented
CorporateEndowment/FoundationPublic
Note: All bars do not sum to 100% as respondents could also select “N/A” or “Unsure”.
64%
73%
73%18% 18% 9% 27%
27%
27% 27% 9%
45% 18%
36% 27%
36% 27% 9%
55%9%9%
64%
100%
64%
56%
67%
11%
22% 11%
11% 44%
22% 33%
44% 11%
11%
11% 44% 11%
67%
33%
56%
75%
71%
42%17%17%
13% 29%
17% 29% 17%
33% 8% 25%
13% 33%
4%4%
4%4% 4%
4%
8% 21%
38% 21%
67%
42%
67%

10. 2013 Risk Management Survey 8Knowledge. Experience. Integrity.
To assess how discussions and actions around strategy-
level approaches—or the adoption of individual strategies
within the fund’s existing structure—were developing, we
asked respondents to indicate their organization’s status
across 11 different approaches. Stages range across a
spectrum, from Education (first stage) to Implemented. It
is implied that those that selected an advanced stage had
already completed all the previous stages, and might have
ended there. Alternately, some funds at earlier stages may
still be considering moves to more advanced stages.
We dissect responses by fund type, revealing substantial
differences between publics, corporates, and endowments/
foundations. For example, long duration is on the radar for
more than 90% of corporate funds, likely as part of discus-
sions around LDI, and 73% have implemented a long dura-
tion strategy. Conversely, less than half of public funds and
endowments/foundations have considered this approach
and only around 10% have implemented it.
Approaches that generate return while adding to portfolio di-
versification have gained the most traction with public funds
and endowments/foundations, including opportunistic fixed
income, absolute return, long/short equity, and real assets.
Strategy-Level Considerations by Fund Type
Indicate which strategy-level, “risk-centric” approaches you have considered or
implemented in your investment program
0% 25% 50% 75% 100%
56%
56%
67%
67%
78%
89%
100%
56%
44%
56%
67%
Education Staff Consideration Presented to Committee Board Approved Implemented
55%
45%
55%
64%
73%
64%
73%
45%
18%
27%
27% 27%
27%
27%
27%
27%
45%
36%
36%
36%
36%
73%
18%
18%
18% 18%
9%9%
9%9%
9%
9%
9%
9%
9%
91%
36%
27%
CorporateEndowment/Foundation
Note: All bars do not sum to 100% as respondents could also select “N/A” or “Unsure”.
0% 25% 50% 75% 100%0% 25% 50% 75% 100%
Yield equity
Short duration/floating
rate fixed income
Currency hedging
Long duration
Risk parity
Risk factor
strategies
Low volatility equity
Opportunistic fixed
income
Absolute return
Long/short equity
Real assets
11%
11%11%11%
11%11%
11%
11%
11%
11%
11%
11%
44%
44%
44%
56%
56%
56%
56%
33%
33%
22%
22%
22%
22%
22%
22% 22%
22%
54%
58%
63%
83%
75%
79%
88%
54%
38%
50%
63%
Public
8% 33%
29%
29%
8%
4% 4%
4%
8%4%
4%
4%
4%
4%
8%
8%
8%
8%
8%
8%8%
8%
8%
17%
17%
17% 21%
33%
42%
38%
33%
38%
46%
17%
17%
17%
13%
13%
13%
13%
13%
13%
13%
17%

11. 2013 Risk Management Survey 9Knowledge. Experience. Integrity.
Risk management is interwoven with plan governance. We
assessed the popularity of more than a dozen options for ex-
plicitly addressing risk in plan governance, and found three
methods that are used by at least 50% of all fund types:
1. Strategic asset allocation,
2. Investment objectives, and
3. Disciplined rebalancing.
Performance and risk monitoring, liquidity needs, and peer
comparisons all registered highly for public funds, and to a
lesser degree for endowments/foundations and corporate
funds.
Other tactics, such as asset/liability matching targets, were
clearly popular with corporate funds (64%) but not with other
fund types. Conversely, only public funds have adopted ex-
plicit risk budgeting, and traction is low even within this group.
Similarly, the majority (94%) of respondents do not have a for-
malized risk budget.
Formally Addressing Risk Management
How is risk management explicitly
addressed in plan governance?
Does your organization have a
formal risk budget?
0% 25% 50% 75% 100%
Risk budgeting
Valuation methodology
Regulatory constraints
Leverage of fund
and investments
Use/monitoring
of derivatives
Asset/liability
matching targets
Counterparty risk
Funded status/
spending targets
Peer comparisons
(asset allocation, risk, return)
Liquidity needs
Performance and risk
monitoring for
all levels of fund
Disciplined rebalancing
Investment objectives
(performance and risk)
Asset allocation/
diversification 73%
96%
89%
64%
79%
89%
64%
36%
71%
67%
75%
44%
9%
71%
56%
56%
18%
25%
71%
45%
44%
9%
44%
42%
64%
17%
18%
29%
11%
8%
9%
21%
0%
0%
0%
44%
25%
33%
0%
0%
29%
11%
Public Endowment/Foundation Corporate Yes 6%
No 94%

12. 2013 Risk Management Survey 10Knowledge. Experience. Integrity.
While the vast majority of funds do not formally budget risk,
more than one quarter (27%) have a formal risk management
process in place that extends beyond strategic asset alloca-
tion and rebalancing. Interestingly, an additional 31% are con-
sidering implementing one in 2013.
Large funds are best equipped to implement a formal risk
management process given the resources this entails. Ac-
cordingly, a greater percentage of large funds have already
implemented a formal risk management process (33%) than
medium or small funds (25%), and another 44% of large funds
are considering doing so in 2013.
Results vary less by fund type than by fund size. Endow-
ments/foundations are least likely to implement or consider a
risk management process.
For organizations that have a formal risk management pro-
cess, understanding and documenting risks is the top prior-
ity. Other goals that rank highly indicate a focus on improv-
ing traditional fiduciary management practices. For example,
“changing the mix of necessary and reasonable risks” and
“lowering medium- to long-term total risk” are goals that are
incorporated into most prudent, long-term asset allocations.
Conversely, two goals that reflect more tactical thinking reg-
istered on the low end of the scale. Hedging specific risks
and lowering short-term, downside risk are less traditional
approaches that are typically more aggressive with a short-
term focus. Few survey respondents prioritize these goals,
as would be expected within a long-term, strategic asset al-
location structure.
Formally Addressing Risk Management (continued)
What formal risk management process goals are most important to your organization?
0 1 2 3 4 5
Tactically lower short-term, downside risk
Specifically hedge certain risks
(e.g., inflation, tail risk)
Lower/minimize medium-
to long-term total risk
Change mix of necessary
and reasonable risks
Improve the risk/return trade-off
Lower funded status volatility
Better understand risks
taken and document them
3.0
2.9
2.8
2.8
2.5
3.4
2.4
Weighted Average Score (0=Least Important, 5=Most Important)
Does your organization have a formal risk management process?
Yes No, but considering for 2013 No, not considering for 2013
0% 20% 40% 60% 80% 100%
Corporate
Endowment/Foundation
Public
Small
Medium
Large
All 27% 31% 41%
50%25%25%
33% 44% 22%
56%19%25%
22% 33% 44%
36%36%28%
27% 36% 36%

13. 2013 Risk Management Survey 11Knowledge. Experience. Integrity.
Bottom up 21%
Risk Measured
Both
43%
Top down
36%
Bottom up 0%
Both
57%
Top down
43%
Risk Managed
Risk Measured
Both
50%
Relative risk
(tracking error) 7%
Relative risk
(tracking error)
29%
Both
43%
Absolute
risk
(volatility)
50%
Absolute risk
(volatility)
21%
Risk Managed
0% 20% 40% 60% 80% 100%
Yes
36%
No
64%
0% 20% 40% 60% 80% 100%
Yes
29%
No
71%
For organizations that have a formal risk management pro-
cess, approaches to risk management are split between
managing risk from both top down and bottom up (57%) and
from top down exclusively (43%). Risk measurement tactics
are more varied, with more than one-fifth (21%) that mea-
sure risk from the bottom up exclusively. A combination of
both methods is the most popular means of measuring risk,
as well, at 43%.
Comparing absolute and relative risk, absolute risk appears
to be the priority, with 50% of respondents relying solely on
this measure to manage risk, and another 43% including it
alongside relative risk. The tables turn when it comes to risk
measurement: a slightly greater percentage of funds rely ex-
clusively on relative risk (29%) than absolute risk (21%), al-
though a majority (50%) uses both.
Explicit risk hedging is utilized by a minority of funds. Just
36% of those with a formal risk management process are al-
lowed to explicitly hedge particular risks. Of those only 29%
are currently hedging any risks, including currency, interest
rates, inflation, and funded status.
Formally Addressing Risk Management (continued)
What is your risk management structure approach?
Absolute risk or relative risk?
Do your guidelines allow you to
explicitly hedge particular risks?
Are you currently hedging any
particular risks?

14. 2013 Risk Management Survey 12Knowledge. Experience. Integrity.
Although risk is clearly a priority for fund sponsors, the
majority (84%) do not employ a chief risk officer (CRO) or
other individual who is primarily focused on managing fund
risk. However, results vary quite a bit by fund type and size.
None of the endowments/foundations surveyed employ a
CRO, while more than one-third of corporate funds have
this position. Public funds strike a middle ground, with 16%
employing a CRO and another 16% considering hiring one.
Results are unsurprising by fund size in that the large funds
are much more likely than small funds to have, or consider
hiring, an in-house individual who is tasked with managing
risks. This is probably a matter of having the resources avail-
able to dedicate an individual to these responsibilities rather
than incorporating them into an existing position.
Risk Management Staffing
Does your organization have a Chief Risk Officer (CRO) or similar assigned role?
Yes No, but might hire one No, will not hire one
0% 20% 40% 60% 80% 100%
Small
Medium
Large
Corporate
Endowment/Foundation
Public
All 16% 8% 76%
100%
16% 16% 68%
64%36%
19% 81%
56%22%22%
6% 94%

15. 2013 Risk Management Survey 13Knowledge. Experience. Integrity.
General investment consultants are the most common
source of risk management services, and the usage of dedi-
cated risk management service providers is low.
The majority of respondents (94%) employ a general invest-
ment consultant,1
though only about half of those receive
explicit risk management services from that consultant.
All of the asset owners that employ a separate risk manage-
ment firm also have a general investment consultant. Large
asset owners, which dedicate more resources to this area,
are three times as likely to use a separate risk management
provider as their small and medium fund counterparts.
Consultants
Does your organization employ a
general investment consultant?
Does your fund employ a separate risk management consultant/advisor/provider(s)?
If yes, does your consultant provide
explicit risk management services?
No 6%
Yes
94%
Unsure 5%
Limited services 7%
Yes
46%
No
42%
Yes No
0% 20% 40% 60% 80% 100%
Small
Medium
Large
Corporate
Endowment/Foundation
Public
All 12% 88%
100%
17% 83%
91%9%
6% 94%
78%22%
7% 93%
1 37% of total respondents were Callan clients at the time they
completed the survey.

16. 2013 Risk Management Survey 14Knowledge. Experience. Integrity.
The adoption of risk management tools is greater than risk
management consultants. Around one-third of respondents
use third-party resources; 10% use these tools in conjunc-
tion with in-house tools.
Whereas none of the endowments/foundations surveyed uti-
lize a dedicated risk management consultant (see page 13),
these organizations were the greatest adopters of risk man-
agement tools, with an emphasis on proprietary methods
(22%). An additional 22% of endowments/foundations use
third-party tools, either exclusively or alongside in-house
software.
In step with other survey findings, large funds have the
most resources to dedicate to risk management and are the
most likely to purchase risk management tools from outside
vendors (61%).
Most funds (87%) monitor risk, but the levels of granularity in
these assessments vary. Top-down analysis of the total fund
is the most common approach used by funds that have risk
measurement systems; it is more prevalent at large (82%)
and medium (80%) funds than small funds (67%).
Large funds generally look at more levels than their smaller
counterparts. Factor level analysis is now only common at
large funds (47%). Very few asset owners (10%) analyze risk
at the security level.
Risk Measurement
Does your fund use proprietary or
third-party tools, such as software
or data vendors, for risk management?
0% 20% 40% 60% 80% 100%
Small
Medium
Large
Corporate
Endowment/
Foundation
Public
All 22%10%10% 16% 42%
22% 33%11% 22% 11%
4%8% 13% 42%33%
9% 27% 45%18%
13% 25% 63%
50% 11% 22%11%6%
13% 13% 13% 13% 47%
Yes, we use both proprietary
and third-party tools
Yes, we use in-house/proprietary tools
Yes, we use third-party tools
No, but considering investing
No, will not invest in them
At what fund level(s) do you use your
risk monitoring system?
0% 20% 40% 60% 80% 100%
My fund does
not have a risk
monitoring or
reporting system
Analysis at the
security level
Analysis at the
factor level
Analysis at the
manager level
Analysis at the
asset class level
Top-down analysis
of total fund
All Large Medium Small
71%
80%
67%
82%
65%
76%
67%
67%
62%
60%
67%
71%
29%
27%
13%
47%
13%
20%
13%
12%
10%
13%
7%
12%

17. 2013 Risk Management Survey 15Knowledge. Experience. Integrity.
One can define and therefore measure risk in many differ-
ent ways: experienced vs. forecasted, absolute vs. relative,
short vs. long time horizons. We posed two questions to
gauge which metrics are most valuable in measuring risk.
We observe that traditional risk metrics such as tracking error
and volatility are being supplemented with downside risk and
drawdown, particularly by public funds. Corporate funds are
embracing surplus volatility, while public funds are the largest
adopters of value at risk and conditional value at risk to better
understand their tail risks.
Nearly three-quarters (72%) of respondents measure actual
experienced risk. Twenty percent measure both actual and
forecasted risk, and an additional 20% measure forecasted
risk over multiple time periods. Endowments/foundations
generally focus on a longer time frame when assessing fu-
ture risk, with 60% looking forward three to five years and
20% looking out further than five years. Conversely, public
funds are most likely to project shorter time frames of one
year or less (74%), potentially indicating a focus on tail risks.
Risk Measurement (continued)
What key outputs do you use to
measure risk? What type(s) of risk do you measure?
0% 25% 50% 75% 100%
Surplus volatility
Conditional Value
at Risk
Value at Risk
Absolute drawdown
(peak to trough)
Downside risk
Absolute volatility
Tracking error
65%
70%
44%
60%
63%
61%
56%
50%
48%
57%
33%
30%
33%
43%
11%
10%
30%
43%
22%
10%
13%
26%
0%
0%
13%
9%
0%
40%
0% 25% 50% 75% 100%
More than
5 years forward
Forecasted
(future) risk
3 to 5 years
forward
Forecasted
(future) risk
1 year forward
Forecasted
(future) risk
Less than
1 year forward
Forecasted
(future) risk
Actual
experienced
risk
All Public Endowment/Foundation Corporate
72%
74%
60%
71%
25%
42%
0%
14%
25%
21%
60%
14%
17%
32%
0%
0%
14%
16%
20%
14%

18. 2013 Risk Management Survey 16Knowledge. Experience. Integrity.
More than half of respondents with risk analysis tools can
simulate economic scenarios, in essence enabling them to
stress test their portfolios. This exercise can be especially
useful in building consensus among fiduciaries on how to
position the fund in a manner that reflects its true risk appe-
tite, as it helps in clarifying and understanding tail risks and
exposures to various market scenarios.
Of those that have risk measurement tools, public funds
(77%) use simulations more frequently than their endow-
ment/foundation (44%) and corporate (40%) counterparts.
By fund size, large funds (71%) lead the charge, although
more than half of small funds (64%) also have this capability.
Most funds find it useful to simulate both historical and po-
tential scenarios. For example, one might simulate how their
portfolio would have fared in the tech bubble crash, the 2008
financial crisis, or the 1987 market crash. Future-looking sce-
narios often hinge on events that could occur, such as the
breakup of the euro or various fiscal cliff scenarios.
Only 4% of respondents indicate that these simulations are
not useful.
Risk Measurement: Market Simulations
Do your risk analysis tools utilize capital market and/or economic simulations?
If yes, do you find it useful to simulate:
Yes No
0% 20% 40% 60% 80% 100%
Small
Medium
Large
Corporate
Endowment/Foundation
Public
All 57% 43%
56%44%
77% 23%
60%40%
40% 60%
29%71%
64% 36%
0% 10% 20% 30% 40% 50% 60% 70%
Neither
Customized future
scenarios
Actual historical
scenarios
Both 58%
31%
8%
4%

19. 2013 Risk Management Survey 17Knowledge. Experience. Integrity.
Less than one-third of funds (31%) regularly generate a formal
risk management report. This figure jumps to 71% for large
funds and 39% for public funds. Large funds are more likely to
have dedicated staff to generate and review this type of report.
The chief investment officer (85%) most frequently reviews
this report, followed by investment staff (77%). The chief
risk officer is rarely the primary audience for a risk report,
largely because few respondents (16%) have a dedicated
individual in this function.
Risk Management Reports
Is there a formal risk management report that is generated regularly?
What group(s) are the primary audience for risk management reports?
Yes No
0% 20% 40% 60% 80% 100%
Small
Medium
Large
Corporate
Endowment/Foundation
Public
All 31% 69%
56%22%
39% 61%
60%18%
40% 60%
29%71%
20% 80%
0% 20% 40% 60% 80% 100%
Chief risk officer
Board
Investment committee
Staff
Chief investment officer 85%
77%
62%
46%
8%

20. 2013 Risk Management Survey 18Knowledge. Experience. Integrity.
Investment staff (including the chief risk officer, where ap-
plicable) generally review risk management data quarterly
(49%) or monthly (31%), with a handful looking at it on a
weekly basis (4%). The 7% of respondents that never re-
view risk management data do not have a formal process in
place to assess or report on this type of information.
Two-thirds of investment committees and boards review
this material quarterly, likely in conjunction with committee/
board meetings. Those that never review this information
(12%) have informal, if any, risk management and measure-
ment processes, and include the funds whose staff do not
review this information.
Risk management information is typically communicated to
other stakeholders quarterly (40%) or annually (24%), if at all.
Reviewing and Communicating Risk Management Findings
How often do you review the findings of risk management tools?
How often do you communicate risk management findings to other stakeholders?
Annually 10%Never 12%
As needed 7%
Monthly 5%
Never 7%
As needed 9%
Weekly 4%
Quarterly 67%
Monthly
31%
Quarterly
49%
Staff/CRO Investment committee/board
As needed 5%
Monthly 2%
Annually
24%
N/A
29%
Quarterly
40%

21. 2013 Risk Management Survey 19Knowledge. Experience. Integrity.
Risk management involves a substantial amount of mea-
surement and data analysis overlaid with prudent judgment.
The investment committee (45%) is the body most frequent-
ly tasked with responding to the findings of risk manage-
ment tools, followed by investment staff (24%). However,
one-fifth of respondents indicate they have not yet taken ac-
tion based on risk assessments.
Endowments/foundations and corporate funds rely most
heavily on the investment committee to take action, while the
staff at public funds have more responsibility in this respect.
For those that have taken action, asset allocation changes are
most prevalent with public and corporate funds. Endowments/
foundations have focused on their investment managers,
most frequently making changes to manager due diligence/
search and manager review/termination. We note that while
discussions of tail risk hedging have been lively in the insti-
tutional investor community, few funds have taken concrete
actions to implement such a hedge.
Taking Action
How does your fund decide when it is
appropriate to take action based on risk
management tools?
Indicate what types of actions your
organization has taken based on risk
management findings.
N/A – we have not yet taken action
based on any risk assessments
Staff/CRO decides
Investment committee decides
Board decides
0%
20%
40%
60%
80%
100%
CorporateEndowment/
Foundation
PublicAll
21%
24%
45%
10%
17%
39%
28%
17%
25%
13%
63%
30%
20%
50%
0% 25% 50% 75% 100%
No actions taken
Tail risk hedging or
other structured programs
Allow managers
increased flexibility in
mandates and/or the use
of derivative instruments
Benchmark changes
Rebalancing decisions
(e.g., implemented tactical rebalancing)
Manager
review/termination
Asset class
“structuring” decisions
Manager monitoring
Manager due
diligence/search
Asset allocation changes
(e.g., diversified assets, pursued LDI)
64%
77%
33%
70%
56%
73%
56%
30%
52%
64%
44%
50%
50%
50%
64%
64%
33%
30%
50%
56%
30%
45%
30%
22%
26%
36%
10%
10%
11%
5%
6%
10%
0%
32%
16%
22%
20%
18%
22%
30%
All Public
Endowment/Foundation Corporate

22. 2013 Risk Management Survey 20Knowledge. Experience. Integrity.
One goal of examining portfolio risk is to help prepare the
fund for the impact of market volatility, and to be more aware
of potential scenarios. Looking down the road to the next
true market crisis, many funds wish to be better prepared
to avoid the worst potential outcomes. While these issues
should be addressed in a strategic, long-term investment
plan, some funds are also considering tactical moves as a
means to this end.
Many fund sponsors wrestle with whether or not to tactically
manage plan risk. Sponsors that do implement tactically must
be willing to accept the risks involved. In fact, only 30% of
sponsors have made rebalancing decisions (including but not
limited to tactical rebalancing) based on risk management
findings. Of those that have not done so, most (82%) do not
plan to in the future. Public (31%) and large (25%) funds are
most likely to use tactical implementations going forward.
Funds that have not used risk management findings as a
tactical allocation tool identify implementation challenges
as the top structural limitation, particularly for endowments/
foundations. Corporate funds identified the frequency of
committee meetings and the ability to develop a consensus
view as the biggest challenges.
Risk-Based Tactical Moves
If you have not decided to use the risk
management findings as a tactical asset
allocation tool, do you plan to in the future?
What structural limitations do you
foresee to implementing a tactical
strategy to mitigate risk?
Yes No
0% 20% 40% 60% 80% 100%
Small
Medium
Large
Corporate
Endowment/
Foundation
Public
All 18% 82%
83%
31% 69%
100%
17%
17% 83%
75%25%
11% 89%
0% 20% 40% 60% 80% 100%
Other
Ability to develop a
consensus view
Accountability for
the view developed
Frequency of
investment committee
meetings
Implementation
challenges
61%
65%
78%
40%
41%
35%
33%
50%
35%
40%
33%
40%
35%
40%
11%
50%
22%
30%
22%
10%
All Public
Endowment/Foundation Corporate

23. About Callan Associates
Founded in 1973, Callan Associates Inc. is one of the largest independently owned investment consulting firms in the country.
Headquartered in San Francisco, California, the firm provides research, education, decision support, and advice to a broad
array of institutional investors through four distinct lines of business: Fund Sponsor Consulting, Independent Adviser Group,
Institutional Consulting Group, and the Trust Advisory Group. Callan employs more than 170 people and maintains four
regional offices located in Denver, Chicago, Atlanta, and Summit, N.J. For more information, visit www.callan.com.
About the Callan Investments Institute
The Callan Investments Institute, established in 1980, is a source of continuing education for those in the institutional in-
vestment community. The Institute conducts conferences and workshops and provides published research, surveys, and
newsletters. The Institute strives to present the most timely and relevant research and education available so our clients and
our associates stay abreast of important trends in the investments industry.
For more information about this report, please contact:
Your Callan consultant or Anna West at westa@callan.com
© 2013 Callan Associates Inc.

24. Corporate Headquarters
Callan Associates
101 California Street
Suite 3500
San Francisco, CA 94111
800.227.3288
415.974.5060
www.callan.com
Regional Offices
Atlanta
800.522.9782
Chicago
800.999.3536
Denver
855.864.3377
New Jersey
800.274.5878