What is the risky decision?

We often evaluate decision-making risk relative to status quo as opposed to overall risk and I find this problematic. We assume that the status quo is our risk benchmark and that may be incorrect. And defined benefit plans are the perfect example.

Pension fund managers and trustees think of Liability-Driven Investing (LDI) as a risky decision: rates are low and equity markets are still 30% off their highs (at least in the US), and converting some equity holdings to fixed income would be a foolish decision, they claim. Although I personally think rates are lower than they should be, the context of the decision is where I have an issue. Those making the claim assume that the risky decision is to engage is risk mitigation, since historic wisdom suggested that a 60/40 equity to fixed ioncome ratio is appropriate. What they should be aware of, however, is that the current asset mix is an active bet that equities will outperform fixed income. And there is risk in maintaining that mix.