Securities choice and price drop risk
The risk that the prices of securities held by the asset management company in the investment portfolio of the fund may fall due to changes in the market situation or new information about these securities. When changes in the price of acquired securities are different from the projected price changes, the percentage of securities in the investment portfolio of the fund is either increased or reduced. The asset management company manages the choice and price drop risk according to the investment portfolio diversification requirements laid down in the rules of the pension fund. The asset management company is entitled to use derivatives in order to manage the price drop risk.
Market and credit risk
The risk that the value of the entire market may go up or down due to fluctuating interest rates, new regulation imposed by regulatory authorities or changes in economic conditions. The asset management company may use derivatives whose value changes together with the creditworthiness of companies or adjust the percentage of debt securities of companies in the fund in order to manage this risk.
Foreign exchange fluctuation risk
The risk that changes in the exchange rate between the currency of securities and the litas will affect the value of investments. The asset management company is entitled to use derivatives in order to manage the foreign exchange fluctuation risk.
Inflation (purchasing power) risk
The risk that the purchasing value and price of coupons and principal of debt securities will fall due to stronger inflation. The asset management company may use derivatives whose value changes together with changes in inflation growth, invest in bonds whose value is tied to inflation growth or change the percentage of bonds in the fund's portfolio and average maturity of fund's bonds in order to manage this risk.
Risk related to the acquisition, accounting and ownership of securities unregulated by the Bank of Lithuania
This risk may be higher than the risk associated with securities regulated by the Bank of Lithuania due to lack of or delay in information about these securities, different legal regulation in every country, different securities accounting standards and possible additional taxation in the country in which the securities were issued. The asset management company manages the risks of these securities by considering their regulation, taxation and accounting issues.
Interest risk
The risk that the value of securities may go up or down when interest rates change, i.e. the value of investments decreases when interest rates go up and, by contrast, increases when they go down. The asset management company may manage this risk using derivatives whose value fluctuates together with interest rates, change the percentage of bonds in the fund's portfolio and average maturity of fund's bonds.
Investment insurance
Investments of pension funds are not covered by the investor compensation fund or the deposit guarantee fund.
Assets are diversified in order to spread risks and pursue financial objectives more efficiently. The asset management company assesses the outlook for economic growth of various countries and decides which part of the fund's assets will be invested in stocks, bonds and other classes of assets. The fund's assets invested in stocks or collective investment undertakings investing in stocks are spread across different geographic regions worldwide and sectors of the economy.
