The correct answer is B.

The fund manager’s conclusion is correct because the Policy-mix VaR and the Active management VaR do not add up to the Asset VaR. This indicates that there is a negative correlation between the Policy-mix VaR and the Active management VaR, which results in a lower overall Asset VaR. The negative correlation implies that when one risk increases, the other decreases, and vice versa. This phenomenon allows for greater deviations from the benchmark without affecting the total VaR of the plan. Therefore, the fund manager can take more risks in active management (deviating from the benchmark) without increasing the total VaR. This is because the increase in Active management VaR would be offset by a decrease in Policy-mix VaR due to their negative correlation.

Choice A is incorrect. The fund manager’s conclusion is accurate because the policy-mix VaR and the active management VaR do not add up to the asset VaR. Therefore, increasing deviations from the benchmark would not necessarily impact the total VaR of the plan.

Choice C is incorrect. The fact that policy-mix VaR is greater than active management VaR does not justify that increasing deviations from benchmark will not impact total plan’s VAR. These two components are independent and their relative sizes do not determine their effect on total VAR.

Choice D is incorrect. Similarly, whether active management VAR is greater than policy-mix VAR has no bearing on whether increasing deviations from benchmark will affect total plan’s VAR or not.