The second and third statements made by the pension fund manager are accurate. The value of pension fund assets may not always be sufficient to cover the liabilities of the fund. This is known as funding risk. A pension fund with defined benefits promises a stream of fixed payments to retirees. If the assets are not sufficient to cover these liabilities, the shortfall will have to be made up by the fund's owner. Therefore, risk should be viewed in an asset/liability management (ALM) framework, to ensure availability of sufficient assets to service the liabilities. An ALM framework is indeed desirable for managing this risk, as it provides a structured approach to managing the risks associated with the mismatch between assets and liabilities.

Choice A is incorrect. While volatility of assets is a risk parameter for a pension fund, it is not the only one. Other risks such as funding risk, interest rate risk, and longevity risk are also important considerations in managing a pension fund.

Choice C is incorrect. This choice suggests that both volatility of assets and exposure to funding risk make an ALM framework desirable for pension funds. However, this ignores the fact that the value of pension fund assets may not be sufficient to cover liabilities – another key reason why an ALM framework is necessary.

Choice D is incorrect. Although it's true that an ALM framework can help ensure that the value of pension fund assets covers its liabilities, this choice fails to acknowledge the importance of managing funding risks which also makes an ALM framework desirable.

Things to Remember

• Asset/Liability Management (ALM) framework is essential for pension funds to manage risks associated with the mismatch between assets and liabilities.
• Funding risk is a key risk faced by pension funds, where the value of assets may not be sufficient to cover the liabilities.