Austrian daredevil Felix Baumgartner’s death-defying leap from 24 miles above the Earth last Sunday was truly awe-inspiring to behold. The drop from his tiny capsule suspended some 128,000 feet in the air saw him freefall for 4 minutes and 20 seconds through most of the Earth’s atmosphere and reach 725mph, breaking the speed of sound… all in a day’s work I guess.
The dangers faced in a challenge like this are no doubt too many to mention, but according to an article on the Guardian website Baumgartner’s team identified 16 key risks that had to all be overcome for the record attempt to succeed. They included ultraviolet radiation, wind shear, landing impact, extreme temperatures, oxygen starvation, decompression sickness, entering a flat spin during the descent, “shock-shock interaction” (an explosive effect when shock waves in the air collide when passing through the sound barrier) and fire aboard the capsule. Had anything gone wrong with his special pressurised suit Baumgartner could have been exposed to a lack of oxygen and temperatures as low as minus 70 degrees, leading to bubbles forming in his bodily fluids. All of which makes my 70-mile bike ride from East Croydon to Hastings last weekend look like a stroll in the park. While clearly very different in nature, pension funds face their own risks in the form of interest rate, inflation, longevity and investment risk, as well as risk from regulation, such as mark-to-market accounting standard rules.
While these are clearly less ‘life and death’ in nature, how they handle those is crucial to success in improving funding levels and ultimately paying pensions, particularly in the current low yielding environment. It therefore pays to be nimble in asset allocation and put de-risking triggers in place even if market conditions mean it is not right to act. As advisers often say, it is better to be proactive rather than reactive once an opportunity to de-risk has passed. The biggest risk is not putting anything in place. At one stage in his descent, Baumgartner entered into a dangerous spin but was able to regain control and go on to land safely back on Earth with a big thumbs up for the millions of spectators. In order to avoid falling back to Earth with a big bump, pension funds need to work with consultants and providers to put risk controls in place.
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