Brazilian Journal of Operations & Production Management 13 (2016), pp 194-206

ASSET AND LIABILITY MANAGEMENT: A MULTIPLE CASE STUDY IN BRAZILIAN

FINANCIAL INSTITUTIONS

Priscila da Silva Trasmontanoa; Julio Vieira Netoa

a
Fluminense Federal University (UFF) - Niteroi, RJ, Brazil

ABSTRACT
Purpose - In the face of an unstable scenario, many banks began to implement the Asset and Liability Management – ALM,
in order to mitigate possible risks, and maximize profitability. In view of this, this study proposes the following problem
situation: which managerial resources promote the implementation of ALM and avoid future problems within Brazilian
financial institutions? Our objective is to investigate how Brazilian financial institutions are structuring the ALM.

Design/methodology/approach - The methodological resource adopted was a Multiple Case Study with qualitative
exploratory research based on a perception survey from Brazilian market specialists that deal with ALM in banks and
pension funds.

Findings - Among the data collected for implementation, the most prominent were: the identification of assets in which the
institution can potentially invest, point estimates of the return on these assets, pertinent legal constraints, parameters used
in the development of liquidity constraints and policy constraints adopted by the institution.

Research limitations/implications - This study had the limitation of not dealing with other segments in the case studies,
and it did not approach computational models in the context of the national market. However, it is expected that there will
be more investment in studies on the theme. Thus, it is suggested that the study is made available in the Brazilian scenario,
and the adoption of the model in institutional settings and by other investors.

Practical implications - ALM theme has relevance in its potential to allow the discovery of economic and financial
vulnerabilities of an organization, as well as to mitigate their risks.

Originality/ value - The paper may bring more knowledge about this management and the process of implementation in
Brazilian financial institutions, particularly in the banking segment, considering that it is still a novel concept in the country.

Keywords: Asset and Liability Management; Brazilian Financial Institutions; Risk; Bank; Pension Fund.

ABEPRO
DOI: 10.14488/BJOPM.2016.v13.n2.a6
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1. INTRODUCTION credit risk, and subsequently, incorporate to the required

capital an amount to cover market risks. In Brazil, that was
A focus on the evolution of Financial Markets allows us
implemented thorough Decision number 2,099 (issued
to understand that “there has been a significant increase in
in 1994), which introduced the requirement of minimum
volume and speed of transactions and a number of leverage
capital for financial institutions, in view of the degree of risk
sources appeared, maximizing the existing risks as well as the
of their active operations (Cunha, 2014).
possibilities of losses” (Rieche, 2005, p.221). Equally, given
that nations and their respective markets are connected in a The second sought a more precise measure of the risks
network or, in other words, in a “global village”, at any given incurred by internationally active banks. In Brazil, that
time they are susceptible to being impacted by economic happened gradually, starting from Communication number
and financial crises, which in turn can disseminate to great 12,746 (issued in 2004), which dealt with “procedures for the
proportions, due to the stakeholders’ proximity. implementation of the new capital structure – Basel II” and
which established a simplified schedule for the adjustment,
Thus, the best chances to survive market volatility lie with
according to the Brazilian Central Bank [BACEN] (2015).
those who manage to anticipate it and who have the ability
to deal with possible changes – and this applies equally to And the third, in addition to considering the liquidity
the Brazilian market. These concepts were the origin of the risk of financial institutions, referred to the increase in the
expression “Asset and Liability Management – ALM”, coined quality of regulatory capital, and the need to keep higher
in the 1980`s to describe “a model successfully adopted quality capital amounts. The adoption of best practices to
by banks, pension funds, insurance companies, university a bigger number of banks was also recommended (BACEN,
endowments, hedge and mutual funds, and wealthy 2013; Cunha, 2014).
individuals” (Mitra et Schwaiger, 2011, p.1).
In Brazil, Communication number 20,615 (issued in
More specifically, in the year 2008, the world suffered 2011), established guidelines in relation to that accord,
a major economic crisis, resulting from the “bubble burst and presented the schedule for the implementation of
of subprime credit”, related to low quality credit assets, recommendations of the Basel Committee on Banking
which affected both the United States and Europe, and that Supervision. BACEN and the National Monetary Council –
reverberated through the other continents. A consequence CMN, presented several measures for liquidity management,
of that event is that there has been a significant increase in which contemplated three areas: reserve requirement,
scientific production about ALM and on the demands for risk operations with the Credit Guarantee Fund – FGC and
management, which in turn led to the intensification of the rediscount (BACEN, 2013; Cunha, 2014).
use of that tool (Marques, 2008).
Talking about ALM implies learning the notion of
ALM is defined as the “high-level management of a bank’s “Risk”. The term usually employed in management, more
assets and liabilities” (Choudhry, 2011, p.15). In that sense, specifically in “risk management”, is “used to describe
ALM may be placed both within the scope of Treasury but the length of the confidence interval associated to a given
also within the Asset and Liability Committee – ALCO. estimate, or to represent the magnitude of the exposure or
uncertainty in relation to some expected result” (Rieche,
Essentially, this tool manages the interest rate and
2005, p.220). In the same way, in the realm of finances, risks
liquidity risk besides defining the global policy and the
may be classified in two categories, as shown in Figure 1:
credit risk management – albeit at the level of tactics, even
Strategic and Non-Strategic Risks, according to the Brazilian
if the credit policy is linked to a lower level within the Credit
Association of Complementary Pension Fund Entities
Committees.
[ABRAPP] (2011).
In addition, it is “a financial (analytic) tool for decision
In relation to Strategic Risks, those are closely related to
making that sets out to maximize stakeholder value”. It also
decision making by the Chief Executive Officer – CEO, and
has as its main objective “to make judicious investments that
identified by targets and objectives. However, they present
increase the value of capital, match liabilities and protect
several risks, such as: the market, liquidity, credit and
from disastrous financial events” (Mitra et Schwaiger, 2011,
systemic risk (ABRAPP, 2011; Choudhry, 2011; Leão, Martins
p.1).
et Locatelli, 2012a; Rieche, 2005).
That led to the need for the creation of monitoring
Market Risk derives from the volatility of the existing
mechanisms, and the Basel Capital Accords I, II and III made
variables in the market, caused by political and other
recommendations for capital management within financial
antagonistic factors; from the fluctuation in portfolio value
institutions.
resulting from adverse change in interest rate; from the use
The first accord aimed at establishing minimal capital derivatives, either for speculation or for hedge; and also for
requirements for financial institutions in order to face the concentration of collateral assets in certain markets.
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Figure 1. Types of Financial Risks

Sources: Devised by the author, adapted from ABRAPP (2011). Choudhry (2011).Leão, Martins et Locatelli (2012a). Rieche (2005).

As for Liquidity Risk, it is understood as the risk that derives from actions filed by the organization or against
the bank will not be able to refinance assets as liabilities, them; from formal inadequacies of the contract, the
for some reason. This results from the timeless differences interpretation of its clauses and its conformity with the
between cash flow generated by assets and liabilities, which pertinent legislation; inappropriate interpretation of current
result in lack of resources to meet obligations, leading to the legislation; and non-adherence to the bylaws, regulations
transformation of assets into cash. There is also a financial of the benefits plan, code of ethics and other internal
risk in the possibility of liquidity loss, which can be of two regulations.
types: market/product and cash flow/obtaining resources.
Given that there are difficulties in understanding the
As for Credit Risk, it derives from the possible implementation of the ALM in Brazilian financial institutions,
occurrence of loss resulting from the non-compliance with by their financial managers with a view to decision making
an obligation, as well as the lack of capacity to pay by the by senior management. According to this, internalizing the
issuer of a security or the borrower of a loan portfolio; of ALM culture is not widespread in the local literature, and
the excessive concentration in operations with certain given the lack of qualified professionals to deal with this
counterparts, market segments or geographic regions; of topic, this study proposes the following problem situation:
the degradation in the quality of guarantees offered by Which management resources promote the implementation
a borrower, transaction counterpart or issuer of security; of ALM and at the same time avoid future problems within
and the deterioration in quality of credit attributed to the Brazilian financial institutions?
counterpart, as in cases of rating downgrade of an issuer of
security (ABRAPP, 2011). It can be inferred that “Although the topic has been
largely discussed in the international business scenario, the
Finally, Systemic Risk derives from the possibility of the literature on the subject in Brazil is scarce” (Leão, Martins
shock affecting a limited part of the segment spreading et Locatelli, 2012a, p.5). In that sense, this study aims at
across the whole system. addressing the topic “Asset and Liability Management –
On the other hand, Non-strategic Risks are identified ALM” in a comprehensive manner.
from institutional processes, and involve both operational The study sets out to investigate the way in which Brazilian
and legal risk (ABRAPP, 2011). Therefore, Operational financial institutions are structuring the Asset and Liability
Risk derives from errors, deficiencies or the inadequacy Management – ALM. By means of studying several cases on
of internal processes, people and systems, management
the theme, and based on the reality of these organizations,
mistakes, as well as resulting from external events such as
the participants’ reports collected highlighted essential
natural disasters, fraud, workers’ strikes, etc.
elements for the implementation of this tool and potential
With reference to Legal Risk, this refers to the non- hindrances.
compliance with legal or regulatory devices. It may also
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2. METHOD predetermined list there were open items, as for example

“others” (Gerhard & Silveira, 2009).
The present is an exploratory study, in the case study
format, based on a survey of perception. The exploratory The two questionnaires applied were not based on a scale,
survey, shaped by its objectives, enabled a focus on the in other words, there was no intention to adopt instruments
problem, to make it more explicit, or in other words, that from third parties, given that those were exclusively
can be understood. The study encompassed elements such developed by the author, through the bibliometric analysis
as: bibliographic inventory, interviews with people who had of articles and survey of the more pertinent themes for
practical experiences with the problem under research, and the study. Thus, the first questionnaire answered by
analysis of the examples which “stimulate understanding” participants contained questions of a socio-ethnographic
(Gil, 2002, p.41). nature, aiming at describing and revealing, in a broad sense,
First, in view of the theoretical and conceptual the social group interviewed (Godoy, 1995). The second
foundation of the study, a bibliographic inventory was done questionnaire presented questions relevant to the theme
at the Library of the Technology, Business Management under investigation, i.e., “ALM”.
and the Environment Laboratory of the Federal Fluminense The data collection phase took place after the
University – LATEC/UFF and the author’s own archives, as presentation and approval of the thesis project by the
well as electronic research in scientific virtual environments Examination Board of the Federal Fluminense University –
of the Brazilian Digital Library of Theses and Dissertations – UFF, on June 13th, 2015. More precisely, the data collection
BDTD, and the Coordination for the Improvement of Higher with ALM specialists took place between June 22nd 2015 and
Education Personnel – CAPES Portal Periodicals, access July 24th 2015. The two questionnaires were sent to subjects
to the SciVerse Scopus – Scopus database. This was made by email, for cognizance of their content prior to the
possible through the use of the keywords, “Gestão de Ativos scheduling and conduction of the interview, accompanied
e Passivos” and “Gerenciamento de Ativos e Passivos”, in by an Introduction Letter of the author as a candidate of the
Portuguese and “Asset and Liability Management”, in Stricto Sensu Postgraduate Program.
English.
In addition, research participants were asked to submit a
The second stage of the study unfolded into a case study mini résumé, as evidence of qualification, with the guarantee
and multiple cases (Godoy, 1995), whereby focus was
that participants and the organizations they work for would
put on the object “ALM”, by apprehending concepts and
not be identified, but just clustered by areas of knowledge
scientific investigation, as well as through the perceptions
and market segment.
of individuals who belong to different financial institutions,
and who for that reason have familiarity with the theme. Specialists were approached through ALM management,
Thus, one of the outcomes of the use of multiple cases is the instructors and consultants working in the Brazilian
formulation of a general explanation that encompasses all market. Interviews were conducted both face to face
cases individually, although they may vary in some particular and via teleconference, depending on each participant’s
aspects (Yin, 2001). availability, and the publishing of data for academic and
scientific purposes was authorized by participants, subject
As research tools for data collections, two structured
to confidentiality of identification. The same applied to the
questionnaires were devised, with the purpose of “collecting
opinions, beliefs, feelings, interests, expectations, situations audio recordings, which had an average duration of forty-
experienced” (Gerhardt et Silveira, 2009, p.69). In observance two minutes.
of the norms, “the questionnaire must be preceded by a
letter of explanation or authorization of the study, referring 3. DESCRIPTION OF THE CASE
to its contents, to the instructions for the implementation of The present study is based on ten ALM specialists who
the investigation through the questionnaire”, accompanied work in the Brazilian market and who are introduced in each
by a “request for authorization and acknowledgement for case – first, there are six participants from the “banking”
the attention, availability and truthfulness of the information segment, followed by four participants from the “pension
given” (Kauark, 2010, p.58). fund” segment. Given that authorization was granted for
The topics above were formulated in open and closed the publishing of data for academic and scientific purposes,
questions, and in a mixed format. Therefore, there were provided their identity was kept confidential, participants
questions which participants responded freely, as they were identified as “Participant 1”, abbreviated for “P1” and
wished, and closed questions, when participants chose one subsequently, according to the order in which interviews
alternative among those presented in a list, signaling that took place. Participants’ names, organizations they are
which best corresponded to what they wished to express. employed by or provide services for, their telephone
However, in relation to the mixed questions, within a numbers and email addressed were kept confidential.
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Table 1. Identification and Characterization of Research Participants

Source: Devised by the Author, 2015

3.1. Identification and characterization of research Science and Engineering. Within the latter, Electrical,
participants Mechanic and Production Engineering were found. Thus,
these professionals are qualified in the Knowledge Areas of
On the basis of data collected as a result from participants’
Applied Social Sciences and Engineering.
answers to Questionnaire 1, it was possible to identify and
characterize the total sample of research participants. Table
3.1.5. Profile of the organization of the research participants
1 represents an overview of the total sample under analysis,
whose data were detailed later on. Among the interviewees, the organization more strongly
represented was the private sector, with seven participants,
3.1.1. Age range of research participants while there were only two from the public sector. Another
It can be noted that ALM specialists who took part in this profile identified was that of the mixed capital society,
study are above 30 years of age, and the majority are below constituted of public and private capital.
49 years of age. Only two participants are between 50 and
59. The 20 – 29 and above 60 years of age brackets had no 3.1.6. Types of organization of research participants
participants. In decreasing order of occurrence, the following
participation can be identified: three ALM specialists who
3.1.2. Research participants’ gender
work for commercial banks, two who work for development
It can be seen that all participants were male. Therefore banks, two in financial consultancy, two in Complementary
the result is null for female gender. Pension Closed Entities – EFPC, and one who works for a
Complementary Pension Open Entity – EAPC. There was a
3.1.3. Level of schooling of research participants null result for participants from financial institutions such
Most participants are postgraduates with Masters as development agencies, investment banks, multiple banks
degrees and emphasis on Finance. Besides, examining and the Caixa Econômica (Brazilian Savings Bank).
these specialists mini résumé, it can be seen that they have
international certification in this area. There were also PhDs 3.1.7. Market segment of the research participants’
among those interviewed. organizations
In relation to the market segment, this study counted on
3.1.4. Research participants’ areas of study
the participation of six ALM specialists who work for banks
Within the areas of study identified the following were (participants P2, P3, P4, P6, P7 and P8) and four who work
found: Business Administration, Actuarial Science, Economic for pension funds (participants P1, P5, P9 and P10).
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3.1.8. Research participants’ job titles 4.1.1.2. ALM Policy – Banking Segment
Due both to the interview script and to participants’ mini From the interviews conducted, it was identified that the
résumé, it can be seen that most interviewees are executive ALM policy is structured within the scope of the Asset and
managers, including administrator, consultant and director. Liability Committee – ALCO in the commercial banks where
Participants P2, P4 and P6 work. It could be verified that
3.1.9. Research participants’ time length as ALM specialists within ALCO the Liquidity Policies, Minimum Cash, Product
By classifying these professionals’ experience in the ALM Pricing, Funding, Stress, Capital Allocation and Exposure
area in bands of 1 to 5 years, 6 to 10 years, and over 10 years, Limits for Market Risk are appreciated.
the distribution turned out to be even with three, four and ALCO is a committee of the bank’s senior administration
three participants, respectively, in each band. The participant which may get together monthly, weekly or sporadically
with fewer years happened to have solid experience in the (Assis, 2014). It is essential that the committee is composed
financial market. Among the most experienced, the average of the President and Vice-President or Executive Director,
was 12-13 years in the ALM area. Treasurer and Business Line Director. In addition, the Head
of the ALM Board, Controllership, Risks and Auditing.
4. CASE ANALYSIS AND DISCUSSION
Nevertheless, ALM specialists P3 and P8, who work for
With the purpose of exemplifying the concepts proposed development banks, report that it is a Financial Committee
by using the data obtained from Questionnaire 2 – ALM, an which decides on these matters. However, management is
intracase and intercase analysis took place, grouping cases segmented into the different departments. There is a project
by the market segments contemplated, i.e., “bank” and currently being developed to promote more integration of
“pension fund”, and in parallel presenting them under the the areas. In a different manner, the consultant and supplier
headings: Understanding ALM; ALM Policy; ALM Relevance; of risk systems and ALM, participant P7, deals with concepts
Types of Models and Numeric Approaches Adopted; of structured ALM policies in his systems.
Essential Elements of the ALM Model; Data Collected
for the Implementation of an ALM Model; Restrictions 4.1.1.3. ALM Relevance – Banking Segment
for Implementation; Success in the Asset and Liability Participants of this study are in agreement on the
Management; Impact Obtained; Adoption of ALM Culture in relevance of the ALM role in highlighting the assets and
Financial institutions. liabilities profile, provide for their management and, as
a consequence, competitive advantage vis-à-vis the best
4.1. Intracase Analysis allocation of resources and adherence to the institutional
This analysis highlighted the main issues commented model. According to Leão (2012b), the management of Asset
by research participants in relation to each theme of a and Liability and the improvement of risk management
particular segment, the coincidence with the literature and and control of short, medium and long term portfolios are
new findings, in consonance with the aims of this study. essential for the correct operation and perpetuity of a bank.
There is an expectation that this theme is contemplated in
4.1.1. Bank Basel IV, according to P6’s report.
This study was represented by participants P2, P4 and 4.1.1.4. Types of Models and Numerical Approaches
P6 who work for commercial banks, P3 and P8 who work adopted – Banking Segment
for development banks, and P7 who works as a financial
consultant for a bank. The following models and numerical approaches were
identified as implemented by the participants in this study:
4.1.1.1. Understanding ALM – Banking Segment
- In relation to Cash, Cash Flow Forecasting Model by
According to the reports, it may be observed that ALM the interest curve of all payables and receivables, Stress
correlates with financial management in an integrated way, Scenario and Minimum Cash;
with mitigation of the liquidity and market risks, controlling
and monitoring of term gaps and of volume of resources - In relation to Financial statements, Balance sheets and
in the assets and liabilities indexing, testifying to Deelstra Income statements, accounts forecasting, with emphasis on
et Janssen’s (1998) report on ALM in banks being geared Capital, Reference Asset, Return on Investment – ROI;
towards the analysis of duration and/or gap management. - Product pricing;
In parallel, Mitra et Schwaiger (2011) ratify that a model of
integrated asset and liability management seeks to find the - Inputs: data on assets and liabilities bank operations;
best investment strategy considering assets and liabilities - Outputs: reports on gap analysis, graphs, simulations
simultaneously. and forecast Financial statements;
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- Pre-determined scenarios (deterministic) and adoption Table 2. Essential Elements in the ALM Model – Banking Segment
of the Monte Carlo method;
- Optimization through a stochastic and parametric
approach.
It can be perceived that the modelling is done by the
Risk Area, like the ALM system developed internally by a
multifunction team, supported by a financial consultancy, in
view of the operational specificities of each organization. It is
also noticed that the ALM methodologies start by measuring
the variable interest rate gap, which is the difference
between the volume of asset and liability indexed to floating
interest rates, given that the financial instruments subject
to these rates are those which bring the biggest uncertainty Source: Devised by the Author, 2015.
on the future measured result at amortized cost in a bank
It can be observed that all banking segment participants
(Souza, 2014).
in this research checked the elements contained in
In addition, one considers the terms of these assets alternatives “a”, “b” and “f”. However, only participant P4
and liabilities, although the appropriation of interests may selected alternative “c”. In relation to alternative “d”, that
occur at different points in time. With that effect, intervals was checked by financial consultants P4 and P7. Alternative
of thirty, ninety, a hundred and eighty days and so on are “e” was checked by those who work for commercial and
defined, depending on the need of each organization, in development banks P3, P6, P7 and P8. Thus, other elements
order to demonstrate the assets and liabilities measuring in were signaled by participants P7 and P8, such as cash like
a given period of time (Souza, 2014). and profitability of assets and liabilities.
4.1.1.5. Essential Elements in the ALM Model – Banking 4.1.1.6. Data Collected for the Implementation of an ALM
Segment Model – Banking Segment
Question number five of the structured questionnaire This topic, dealt with in question number six of the
sought to detect the items in the ALM Model (Kusy et structured form, investigated the data collected for the
Ziemba, 1986) adopted by research participants in financial implementation of an ALM Model in financial institutions
institutions. The answers are compiled in Table 2 below, (Kusy et Ziemba, 1986). The alternatives checked by ALM
based on the data collected. specialists are presented in Table 3.

Table 3. Data collected for the implementation of an ALM Model – Banking Segment

Source: Devised by the Author, 2015.

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It can be verified that the answers are clustered around Entities – EFPC, and P5, who works as a financial consultant
the data comprised by alternatives “a”, “b”, “c”, “d”, “e”, “h”, for Pension Funds.
“i” and “j”. On the other hand, “f”, “g”, “k”, “l” and “m” have
4.1.2.1. Understanding ALM – Pension Fund Segment
low representativeness.
The ALM specialists who took part in this study and who
4.1.1.7. Restrictions for Implementation – Banking
work in EAPC and/or EFPC point out that ALM management
Segment
is concerned with the objectives of the plan, in particular
It can be noticed that part of the ALM Model develops the compliance with the actuarial liability. This view may
within financial institutions and this study is recent in be found in Gazzoni, Danielli et Silva (2008) who define
Brazil. One of the biggest restrictions found is related to the ALM as the par excellence instrument in strategic business
collection and preparation of the data bank, as well as the management, due to the subsidies generated on the basis
establishment of parameters for feeding the system, given of modern evaluation techniques of the risks related to
the complexity and volume of operations. benefits plans liabilities, as well as their compatibilization
with the investment of their guarantor assets.
In addition, the following were detected: the need for
support from senior management, dissemination of the role 4.1.2.2. ALM Policy – Pension Fund Segment
of ALM within related areas, training of teams, the issue It can be observed from participants’ responses, that
of management centralization and pricing of assets and ALM guides the Investment policy of pension funds, whose
liabilities. strategy is dependent upon the type of obligation and/or a
4.1.1.8. Success in the Management of Assets and resolution perspective. Besides, the segregation of functions
Liabilities – Banking Segment pertaining to the areas of ALM operation, assets purchase
and sale, and calculates actuarial liabilities was detected.
It may be noticed that support from senior administration
is reiterated as an essential factor for the implementation Rieche (2005) mentions the compulsory character of
of ALM, which may originate from shareholders’ demand. the annual establishment of this policy which must contain
The same applies to data treatment, data consistency the criteria for resource allocation among the different
and criterion definition. Thus, it is observed the change segments and the aims for the management of each limit;
in strategy in view of the predictability of events and the the criteria for hiring legal entities; the evaluation of the
visualization of results through the use of the tool. macroeconomic scenario in the short, medium and long
term; the analysis format in the sectors where investment
4.1.1.9. Impact Obtained – Banking Segment is intended to happen, among others established by the
The impact noticed by research participants in relation Complementary Pension National Council – CNPC.
to the implementation of an ALM Model is shown in In a complementary way, Bezerra (2008) shows that
the efficiency of the financial management through because of the peculiarities of the Defined Benefit Pension
comprehension of the dynamics of the organization; the Plan – DB, the Defined Contribution Plan – DC and Variable
possibility to steer policies, optimize resources, minimize Contribution Plan – VCP, the tendencies of their Investment
risks through projected scenarios and managerial reports policies are outstanding, so the DB aims to reach an actuarial
which guide the decision making process; consistency and target, whereas the DC or VCP only have a reference target.
increased security for stakeholders.
4.1.2.3. ALM Relevance – Pension Fund Segment
4.1.1.10. Adoption of an ALM Culture – Banking Segment
It can be seen that ALM is essential for the management
It can be noticed that the ALM culture is poorly spread of pension funds, both for the allocation of resources (asset)
within financial institutions, judging from research and for the payment of benefits (liability) to the mass of
participants’ responses. Among those which have an participants vis-à-vis their life time and retirement term,
ALM area or committee, these concentrate the ALM role, contributing to the process of risk management. Hurtado
although the need to spread the culture with a view to (2008) emphasized that the integrated treatment of assets
optimizing resources may be noticed. This requires advanced and liabilities with a view to minimize the gap risk between
knowledge in finances, both relative to market instruments them is indispensable for the strategy of financial risk
and of operations, whose operations have a great impact. management in organizations with actuarial liabilities.
4.1.2. Complementary Pension Entity 4.1.2.4. Types of Models and Numerical Approaches
Adopted – Pension Fund Segment
This segment was represented by participants P1, who
works for a Complementary Pension Open Entity – EAPC; Among the models and numerical approaches adopted
P9 and P10, who work for Complementary Pension Closed by these specialists, the following were mentioned: the
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Portfolio and Taxes Duration Gap, Stress Test, Markowitz elements were described as administrative costs and
Model, Random Walk, Stochastic Method and Optimization portfolio increase by fixed income, by participants P5 and
through genetic algorithms. P9, from EFPC respectively.
Therefore, Cardoso and Santoro (2008) call our attention 4.1.2.6. Data Collected for the Implementation of an ALM
to the need to build a differentiated investment strategy, in Model – Pension Fund Segment
accordance with the characteristics of each retirement plan.
Question number six in the structured form sought to
4.1.2.5. Essential Elements of the ALM Model – Pension analyze the data collected for the implementation of an
Fund Segment ALM Model, as shown in Table 5, and the specialists who
took part in this study adapted the items listed so they fit
Question number five of the structured form aimed at
complementary pension fund organizations.
checking the items covered by the ALM Model research
participants who work in complementary pension The outstanding alternatives as perceived by these
organizations, as can be seen in Table 4. specialists were “a”, “b”, “h”, “i” and “j”, and new points
covered by “m”, such as capital cost, transaction costs of
Table 4. Essential Elements in the ALM Model – Pension Fund Segment
financial instrument exchange, definition of which assets
are marked to market and which are marked on the curve,
the need to have a robust tool for data treatment, spreading
ALM and risk culture associated to the need for return in the
long term, dialogue between the actuarial and investment
areas in relation to the ALM model, reinvestment process
and decision making.
4.1.2.7. Restrictions for Implementation – Pension Fund
Segment
Among the restrictions found for the implementation
both in development and production models, these can be
Source: Devised by the Author, 2015.
noticed: the need for improvement of stochastic scenarios,
Alternatives “a”, “b” and “f” were chosen by all research the incorporation of regulatory capital cost for EAPC in
participants, while there was null result for “c”. Conversely, the process, the interaction between the actuarial and
alternative “e” was checked by the majority, except for investment areas, the specification of the very tool and
participant P1, who works in EAPC. Alternative “d” divided collection of market data for the pricing of bonds and the
opinions and was considered by the pension fund consultant interest rate structure, as well as the understanding of the
– P5 – and by the specialist working in EFPC, P10. Other role of ALM.
Table 5. Data Collected for the Implementation of an ALM Model – Pension Fund Segment

Source: Devised by the Author, 2015.

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4.1.2.8. Success in the Asset and Liability Management – 4.2.4. Types of Models and Numerical Approaches Adopted
Pension Fund Segment
Banks must consider the requirement of the Brazilian
Each specialist emphasized what would be considered Central Bank – BACEN in order to structure the data of
success in this kind of management and gave distinct their asset and liability operations within the models, while
opinions in relation to governance, adequacy of the tool, pension funds consider the composition of their portfolios
monitoring of the portfolio, alignment of strategy between in accordance with the level of investment and the actuarial
the foundation and the hired consultancy firm, the norms liabilities.
posed by the regulatory agency and reiteration of the
support from senior management and training of the team. For a simulation of scenarios, both start from a
deterministic ALM until they obtain the optimization through
4.1.2.9. Impact Obtained – Pension Fund Segment stochastic in which it is possible to make studies according
The specialists demonstrated the evolution of ALM to each objective, besides doing stress tests.
within the foundations, in particular the impact on market
4.2.5. Essential Elements of the ALM Model
behavior in recent years, and the resulting need to structure
an Investment policy which contemplates macro allocations Alternatives “(a) multiperiodicity (forecast events)”, “(b)
of the portfolio in view of the obligation. simultaneous considerations of assets and liabilities” and
“(f) legal and policy constraints” posed in the fifth question
4.1.2.10. Adoption of an ALM Culture – Pension Fund
Segment of the structured form were selected unanimously among
research participants as essential elements of the ALM
In relation to the complementary pension entities, a Model.
stronger disposition to spread the ALM culture can be
noticed, motivated by the efficacy in the use of the tool, As new features for the banking segment, cash like and
even if some organizations need to count on the help of an profitability of assets and liabilities were identified.
external consultancy when they have a limited administrative Conversely, the administrative cost and the stretching
structure. of the fixed income portfolio for the ALM Model within
complementary pension fund organizations was noticed.
4.2. Intercase Analysis
In view of the reports from research participants as shown 4.2.6. Data Collected for the Implementation of an ALM
in Section 3.1, the content of each case was confronted and Model
their convergence and singularities were demonstrated. With respect to the data collected for the implementation
4.2.1. Understanding of ALM of an ALM Model, the alternatives of the sixth question in
the structured form which had more prominence among
Both research participants from the banking segment research participants were “(a) identification of assets in
and those from pension fund agree on the use of ALM as a which the institution can potentially invest”, “(b) point
strategic tool for resource allocation, albeit the first highlights estimates of the return on these assets”, “(h) pertinent legal
the need for an integrated management approach, while constraints”, “(i) parameters used in the development of
the latter worries about the coverage of actuarial liabilities. liquidity constraints” and “(j) policy constraints adopted by
4.2.2. ALM Policy the institution”.

While in financial institutions one can find the structure Besides the above, specialists who work for banks chose
of an Asset and Liability Committee – ALCO or a Financial “(c) point estimates of capital gains (losses) as a function of
Committee which defines methodologies, approves the time the bank holds the assets”, “(d) identification of the
policies, limits and scenarios for analysis, and checks on the liabilities that the bank can potentially sell” and “(e) point
alignment of the strategy, in the complementary pension estimates of the costs of these liabilities”.
organizations one notices that ALM guides the Investment
4.2.7. Restrictions for Implementation
policy, under the criteria established by the Complementary
Pension National Council – CNPC. It can be seen that the great barrier for the implementation
of ALM starts with data treatment and the specification of a
4.2.3. ALM Relevance tool for both cases. Another deciding factor is the support
It is noticeable that the role of ALM is instrumental for from senior management, an understanding of what the
organizations, irrespective of their nature, be it financial or concept entails, the creation of a team, interpretation of the
not, given that ALM allows for better management of assets content generated and the impact of decisions which derive
and liabilities in time, therefore optimizing results. from the latter.
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4.2.8. Essential Elements for a Successful Implementation of 4.2.8.2. Essential Elements for a Successful
ALM and Occasional Impasses Implementation of ALM and Occasional Impasses – Pension
Fund Segment
Questions numbers eight, nine and ten of the structured
form deal with success in the Asset and Liability Management, From the point of view of research participants who
the impact obtained and the adoption of an ALM culture, work for complementary pension institutions, the success
respectively, and seek to present the essential elements in asset and liability management is closely related to the
for a successful ALM implementation and occasional governance process, to the existence of a committee which
impasses noticed by participants in the present study. The decides on this matter, to the training of professionals and
corresponding reports were transported to the word cloud the availability of the tool. Participants talked about the
tool TagCrowd with the aim of showing through Figures 2 monitoring of the portfolio, about the market and liquidity,
and 3 the most recurrent words in their segments. the integration of investment and actuarial areas. Equally,
they emphasize the support from senior management,
4.2.8.1. Essential Elements for a Successful
although there is an Investment policy based on ALM studies.
Implementation of ALM and Occasional Impasses – Banking
Segment The impact obtained with the ALM implementation could
be observed in the behavior of the portfolios which become
With respect to the success in the Asset and Liability
better adapted to the liabilities of foundations for a longer
Management, an understanding of the dynamics of the
period of time, supported by studies which allowed for
bank, their products and financial instruments are crucial for
better portfolio allocation and crucial decisions with special
the start of the ALM project in financial institutions. Later
care in relation to the risks involved in the operations.
on, this project must be supported by senior management,
for purposes of resource allocation, facilitating the In this segment, the adoption of an ALM culture is more
dissemination of this culture within the organization welcome, given that the need for a study related to planned
and allowing for better communication within the areas, objectives and their beneficiaries was evident, and the
considering the possibility of projecting results from the efficacy of providing more grounds for investment decision
conciliated data generated by accountancy, change strategy making was demonstrated.
in search for more productivity.
As for the impact obtained, the Banking Segment counts
on a multifunction team for the design of the ALM project,
particularly from Finance, Management and IT; it becomes a
central finance unit of a bank, which liaises with areas such
Figure 3. Essential Elements for a Successful Implementation of ALM and
as commercial, business, credit, funding and treasury; it Occasional Impasses - Pension Fund Segment.
generates more comfort and confidence in decision making Source: Developed by the Author with the TagCrowd tool, 2015.
through simulated scenarios and forecasting, with impact
on timeframes, on better financial management, planning,
CONCLUSION
policy making and minimizing risks.
However, the adoption of an ALM culture within these The advances in the global market and its volatility have
organizations suffers from the ignorance on the power and challenged financial institutions such as banks, and more
purpose of the tool, and therefore lack actions to promote lately, complementary pension funds types of institutions,
it through presentations, incentives linked to target, and/ insurance brokers, and investors, among other entities,
or training for members of the board of administration, to learn how to manage their resources and to deal with
managers and other staff done by multiplying agents of constant risk, therefore, to seek prevention from crisis
knowledge, who may be external, the very ALM team or a threats. This led to ALM, a model for the management of
work group created to this end. assets and liabilities, which is amply spread internationally
but started to be discussed in Brazil only recently.
In consonance with the research hypothesis, the
management resources which promote the implementation
of ALM and which at the same time prevent future problems
within financial institutions in Brazil are: support from senior
management, understanding of the theme, creation of a
Figure 2. Essential Elements for a Successful Implementation of ALM and
Occasional Impasses – Banking Segment
team, existence of a committee to discuss and decide on
Source: Developed by the Author with the this matter; integration of related areas, improvement of
TagCrowd tool, 2015. internal controls; mapping of all assets and liabilities within
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DOI: 10.14488/BJOPM.2016.v13.n2.a6

the organization (in terms of volume, amount and due Banco Central do Brasil. (2013). Diretoria de Regulação do
date); data treatment; specification of tool; analysis of the Sistema Financeiro. Departamento de Normas do Sistema
differences (gap or mismatch), in other words, gaps; and Financeiro. Basiléia III: implantação no Brasil [Slides].
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with representatives of the finance area (treasury, funding, Bezerra, J. T. F. (2008). Política de Investimentos:
credit, accountancy and controllership), IT and planning. tendências para os planos BD, CD e CV. In W. Góes (Coord.).
Fundos de pensão: gestão de investimentos. [Investment
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Policy: trends for DB, DC and VCP plans. In: W. Góes (Coord.).
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to the criteria established by the regulating agency. It was formulação da Política de Investimentos. In W. Góes
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literature surveyed, and the ALM theme has relevance in its
Choudhry, M. (2011). Bank Asset-Liability and liquidity
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risk management. In G. Mitra, & K. Schwaiger (Eds.). Asset
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financial institutions, particularly in the banking segment, Comunicado n. 12.746, de 09 de dezembro de 2004 (2004).
considering that it is still a novel concept in the country. [Communication number 12,746 of December 9th, 2004
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is made available in the Brazilian scenario, and the adoption Comunicado n. 20.615, de 17 de fevereiro de 2011
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