Answer: From the plan sponsor's perspective, nominal pension obligations are similar to a short position in a long-term bond

The correct answer to the question about risk management in the pension fund industry is option D. From the plan sponsor's perspective, nominal pension obligations are similar to a short position in a long-term bond. This is because liabilities at a pension fund, which are typically composed of accumulated benefit obligations, are measured by the present value of all pension benefits owed to employees, discounted by an approximate interest rate. When these liabilities consist mostly of nominal payments, their value generally behaves like a short position in a long-term bond. Option A is incorrect because the policy-mix Value-at-Risk (VaR) and active-management VaR do not always add up to the total-asset VaR. There is a slightly negative correlation between the two, which leads to a lower overall asset VaR. Option B is incorrect as pension funds always benchmark their performance to a portfolio of index funds, which means they do consider performance relative to a benchmark. Option C is incorrect because if the assets of a pension fund are not sufficient to cover the liabilities, the shortfall will have to be made up by the fund's owner, thus creating a risk for the plan sponsor. This explanation is based on the provided file content, which references Philippe Jorion's "Value-at-Risk: The New Benchmark for Managing Financial Risk, 3rd Edition" and focuses on the investment process of large investors such as pension funds.

Author: LeetQuiz Editorial Team