Nearly one in five (18 per cent) pension funds believe they do not have enough liquidity to withstand adverse scenarios, research from Ortec Finance has revealed.

The research, which surveyed senior pension fund executives in the UK, US, the Netherlands, Canada, and the Nordics, found that a further 62 per cent felt they had enough liquidity for most scenarios but admitted the situation could become “problematic” in extreme scenarios.

Meanwhile, 20 per cent of pension scheme executives said they have no liquidity concerns.

In addition to this, managers said they can see risks across the short and long term, with long-term liquidity risk being the biggest risk faced by the funds they manage, with around 60 per cent saying so.

A quarter (25 per cent) said short-term liquidity was the biggest risk, while 15 per cent said the short and long-term risks were roughly equal.

Among defined benefit (DB) schemes, increasing exposure to private assets was part of the reason for liquidity concerns.

Of the managers questioned, 80 per cent reported that the risk of unfunded commitment posed a “significant” or “slight” risk to the DB pensions industry over the next three years.

However, a quarter (25 per cent) of pension scheme managers believed unfunded commitments beyond the control of pension portfolio managers posed a “significant” risk, while 19 per cent said it was not a risk.

Despite liquidity concerns, 58 per cent said liquidity was already well managed and 28 per cent said other risks were more pressing.

Furthermore, 10 per cent said liquidity risk was front of mind, while 4 per cent said it was not a major concern.

Ortec Finance managing director global pension risk, Marnix Engels, said: “Our study highlights the liquidity issue that pension funds are facing, especially given the largely unpredictable nature of projecting unfunded commitment and capital calls.

“To address this issue thoroughly, funds should focus on scenario modeling and stress testing.

“Scenario modeling of the capital calls and distributions or private assets can help funds understand what their liquidity constraints may be in the worst-case scenarios in the next five, 10, or 20 years.”

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