4  BIS central bankers’ speeches  The fourth issue concerns the role of insurers and pension funds as global providers of longterm risk capital. These institutions found it difficult to play this role during the crisis, due to extreme market pressure and volatility. But steeper risk charges will also make it costlier to hold long-term risky/illiquid assets in the future.
Moreover, the investment horizon is being reduced by the one-year-horizon of Solvency II, shorter grace periods for pension funds to address funding shortfalls, and heightened accounting volatility. This limits the scope for taking long-term or illiquid positions without too much concern for short-term fluctuations in their value. These factors tend to encourage a shift away from long-term investing in risky assets.