At the close of 2017, a US pension fund held assets valued at USD 840 million and liabilities valued at USD 450 million. The assets were entirely invested in equities and commodities, while the liabilities consisted solely of fixed-income obligations. By the end of 2018, the value of the assets had decreased by 14.0%, and the value of the liabilities had increased by 3.5%. There were no changes in the composition of the assets and liabilities throughout the year. Calculate the change in the pension fund's surplus over the 1-year period.

Section: Risk Management and Investment Management

Reference: Philippe Jorion, Value-at-Risk: The New Benchmark for Managing Financial Risk, 3rd Edition (New York: McGraw-Hill, 2007). Chapter 17 - VaR and Risk Budgeting in Investment Management.

Learning Objective: Recognize the distinctions between the following types of risk: absolute risk, relative risk, policy-mix risk, active management risk, funding risk, and sponsor risk.