cityboy

this also relates to the fact that once the operating asset's true risk level is known - in order to implement - either leverage would need to be reduced or increased depending upon how the firm wants to move (100% equity on Pension assets or 100% bonds on Fixed Assets). When 100% Equity is pushed on the Pension assets - they become more risky. In order to keep the Equity Beta of the firm the same as before - you would now need to reduce the total risk of the firm - which would only be possible by reducing Debt - so your leverage needs to go down.

Risk Budget is what it is in the final analysis.

CP